UK storage sectors only heading one way
By Chris Perera
With a growing weight of capital in the UK industrial sectors, investors are alive to the opportunity in other sectors adjacent to urban logistics.
Domestic and international institutions are likely to flock to subsectors benefiting from similar characteristics and where growth potential is pronounced, with interest in industrial open storage (IOS) and self-storage being a case in point.
Early movers in logistics were wise to recognise that ecommerce growth, supply chain shifts, the environmental, social and governance agenda and accelerated urbanisation were fundamental structural changes that would be here for the long term, and where investors could generate attractive returns by delivering better real estate to facilitate them.
These macro forces are best summarised as the ‘Ds’: decarbonisation, deglobalisation and digitalisation. They also underpin the self-storage and IOS investment cases, where UK investors envision a similar trajectory to that of the more established US markets. Moorfield is one of those, with our urban logistics, self-storage and IOS portfolios now standing at a combined £300m in gross development value.
In the IOS sector, a big part of the occupier demand story can be explained by outsized demand in urban logistics. High take-up of prime-located logistics sites meets an undersupply of space for electric vehicle charging, van storage and other key components of the logistics supply chain, which nearby open storage can fulfil.
The maturity of the sector has been helped by the changing mix of tenants, too. Building contractors and material suppliers are being
joined by third-party logistics providers, with proximity to transport networks, HGV accessibility and low site coverage helping to anchor new supply chains.
The maturity of the IOS sector has been helped by the changing mix of tenants
Despite yields moving out in urban logistics, many investors are still priced out of the market and see open storage as a comparable discounted opportunity. This partly explains why Carter Jonas values the IOS sector at £16bn in the UK and why 2023 rents spiked by around 50% compared with 2022, according to Savills.
The self-storage sector is also finding a new role in the economy as supply chains reconfigure. Small businesses are making up a larger share of a tenant mix traditionally dominated by consumers. This new source of demand, coupled with rising interest rates, has served to settle concerns around the cooling of demand caused by a slower housing market.
Moreover, the sector performs well during a downturn as households continue to relocate, downsize or require stop-gap storage space. Investors can capture an inflation-linked income stream in a market that surpassed £1bn in turnover for the first time last year.
The storage sectors also provide the opportunity to create value through active, hands-on asset management. Some of these methods in self-storage include providing better customer service and offering digital solutions and strong revenue management.
In open storage, they include delivering focused tenant engagement programmes or navigating the planning system for more efficient and flexible use of space.
If the US markets are anything to go by, and the new structural forces shaping our economy take shape, the UK storage sectors are only heading one way. As more portfolios reach investable scale, it can’t be too long before core capital arrives.
Chris Perera, head of origination, Moorfield Group