With housing delivery slowing and space shrinking, self-storage attracts investor attention

As the UK looks to build more homes and meet demand, developers constrained by planning laws, market dynamics and reduced affordability are pursuing rental models which provide compact accommodation with shared facilities. Investors reading between the lines can see an investment opportunity: self-storage solutions.

Data from the English Housing Survey showed the average size of owner-occupied homes was 61 square metres per person in 2022. However, property sizes in the rental sector were much smaller due to the higher number of flats in this category. It is the private rented sector that is most squeezed, with an average floor area of 28 square metres per person. The number of households in the sector has increased by 52% since 2008/9, according to the English Private Landlord Survey.

What does this mean for investors looking at the property sector? The opportunity is clear. The number of renters is on the rise and those renting often lack adequate space for storage. While these rental properties may go some way in meeting housing demand and the affordability requirements of tenants, their storage needs remain unfulfilled.  Enter self-storage.

An unexpected boom

Over the past 20 years, self-storage has seen the largest growth of any vertical within the real estate sector, and while it has solidified its appeal as an investable asset class in the US, the UK market has only begun its boom.

In 2024 alone, the sector generated nearly £1.2 billion in revenue. Despite economic uncertainties, demand has remained strong with a promising upward trajectory. One major player in the sector reporting almost 50% of customers as first-time users while 65% upgrade to larger units after initial use.

Self-storage has become a flexible operation, with significant appeals to investors due to its wide-ranging and resilient customer base, from university students to new home movers and business operations. Offerings can also be easily adapted to suit the region and local demographic.

Premium models, usually located in urban centres or near affluent suburbs, offer longer contracts and more stable income streams, making them particularly attractive to investors aiming for yield stability. On the other hand, regional operators benefit from lower operational costs, enabling faster project delivery and potentially higher margins.

Hurdles remain

As with any real estate asset, self-storage is not without its challenges. Navigating planning permission can still be difficult, as new developments can be delayed or denied due to local council resistance, zoning restrictions or community opposition. New entrants are advised to understand the unique challenges of the first five years of lease-up situations and to work with a specialist lender which understands the sector. Additionally, fit-out costs have risen from £60 to £70 per square foot to around £100 per square foot, excluding land. While this has reduced equity returns, projects remain viable and this increase in costs is balanced by the fact that the UK self-storage real estate per capita is expected to rise from 0.91 square feet to 1.18 square feet by 2040.

Increasing institutional investment

Institutional investors are expected to increase their activity, boosting institutional-grade stock with cap rates between 5-7% regionally, with prime assets at around 4.75%. This trend is supported by the resilience of cap rates in the sector, which have remained stable despite the inflation and increased debt costs which have impacted other property sectors.

The sector is becoming increasingly sought-after as it is less operationally intensive compared to other popular assets, such as hotels or senior living facilities. Quick-build and fit-out models appeal to institutional investors because they deliver faster time-to-income. Conversions are quicker, knockdown and rebuild projects offer positive economics, and technology adoption such as keyless access and AI-powered CCTV provide significant operational efficiencies.

Growth outlook remains strong

With a 6% increase in revenue per square foot, the UK self-storage sector is poised for continued growth, driven by increasing demand, technological advancements, and institutional investment; ASK has also seen a rise in self-storage financing opportunities. Challenges such as planning permission and rising costs persist which require patience and the right partners to overcome but the sector’s resilience and adaptability make it an attractive asset class for investors and operators alike.

As UK build costs continue to rise and housing cycles lengthen, the need for flexible, accessible storage will only grow, creating a maturing, competitive, and highly investable market.

Joe Freedman, Head of Origination at ASK Partners