Business Users, Residential Challenges Spur U.K. Self-Storage Growth

 

 

A Guest Installment by David Greenwood, CEO, Boxload
Self-storage arrived in the United Kingdom during the 1990s, with the first facilities opening in London. Although it took almost 10 years before the concept became widely recognized by consumers, the industry has seen significant growth since 2000 in large part to the shrinking size of Britain’s “rabbit-hutch” homes.
The Self Storage Association of the United Kingdom (SSA-UK) estimates there are now more than 830 self-storage facilities in the U.K., with more than 250,000 people using them. Our consumer society means many people are gradually running out of space—more and more stuff comes in and it's not going out. Although items are becoming increasingly disposable, people are still reluctant to throw away things they’ve bought.
The average length of stay for a self-storage customer in 2012 was more than 41 weeks, an increase of four weeks compared to 2011, according to the SSA-UK. An increased proportion of business users during the recession is one reason average storage time has increased since business users typically store for much longer than private individuals. However, even before the recession, private users were also staying longer, mainly because of cramped modern housing and more people living alone in smaller homes without garages or attics.
Compared to the United States, the U.K. pales in significance for self-storage. In the U.S., there is now more than 7 square feet of self-storage space per person. In the U.K. there is only 0.5 square foot per person. However, the U.K. still leads in Europe, with more facilities than all of its European Union cousins combined.
And things don’t look likely to slow. With the U.K.’s population expected to keep increasing and space for new construction reducing, 2013 looks like it will be a good year for self-storage operators in the U.K.
David Greenwood is CEO of Boxload, a company providing "mail storage" solutions for personal and business users in the United Kingdom. For more information on storage investment opportunities, visit  http://www.letsonsecuritiesltd.co.uk/#!commercial-property/cdfc
Editor's Note: For additional insight into the state of the U.K. self-storage market, please refer to the infographic below, courtesy of Boxload.

The US housing market in charts: Case-Shiller and home permits

US home prices rose 0.7% in September and are up 13.3% over the same period last year, according to new data from the S&P Case-Shiller index. The index, which measures single-family home prices in twenty metro areas, showed the highest year-over-year gain since February 2006, Reuters reports.
Reuters breaks down the gains by metro area. Las Vegas leads the way with a remarkable 29% jump over last year:
Here’s Case-Shiller’s longer-term view of US housing prices, charting the index back to 1988:

Also this morning, new data from the Commerce Department showed October US housing permits rose 6.2% above September’s level, and 13.9% year-over-year.
Calculated Risk’s Bill McBride looks at total and single unit permits since 1960 and sees a “huge collapse following the housing bubble”, followed by a general increase “after moving sideways for about two years and a half years”. Here’s his chart:

IS THE FED TAPERING TO EFFECT US HOUSING MARKET

Some economists said the housing data, combined with stronger-than-expected October nonfarm payrolls and retail sales reports, raised the risk the Fed could scale back its massive monthly bond purchases as early as December.

"The jump in building permits means that another obstacle to tapering is now removed," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

"The weakness in housing starts and new home sales were probably one important reason - besides the slowdown in payroll gains - why the Fed did not taper in September."

The U.S. central bank noted at last month's meeting that the recovery in the housing sector had slowed somewhat in recent months. Fed policymakers next meet on December 17-18.

The strong march in house prices, rising stock market prices and improvements in job gains are not helping to lift household spirits, which could be a challenge for retailers during the holiday shopping season.

In a third report, the Conference Board said its index of consumer attitudes fell to 70.4 this month from 72.4 in October. Consumers' labor market assessment was little changed.

But while building permits are not counted in gross domestic product (GDP), they are a key indicator of economic activity and the sturdy gains in both September and October should ease concerns the housing market recovery was stalling.

"The building permits reports suggest some upside risks to GDP growth in the coming quarters from construction activity," said Millan Mulraine, senior economist at TD Securities in New York.

Though higher mortgage rates have slowed the pace of home sales, demand for accommodation as household formation continues to recover from multi-decade lows is expected to keep supporting residential construction.

Permits for the multifamily home sector surged 15.3 percent in October and approvals for buildings with five units or more reached their highest level since June 2008. Single-family home permits, the largest segment of the market, rose 0.8 percent.

The Commerce Department postponed the release of figures on housing starts and completions for September and October until December 18 because the collection of data was affected by the 16-day shutdown of the government last month.

November data also will be published at that time. The partial shutdown of the federal government also delayed the publishing of the September and October permits reports.

US CONTINUES TO SHOW GROWTH WITHIN HOUSING SECTOR

WASHINGTON (Reuters) - Permits for future U.S. home construction hit a near 5-1/2 year-high in October and prices for single-family homes notched big gains in September, suggesting a run-up in mortgage interest rates has not derailed the housing recovery.

The data releases on Tuesday were the latest signs of strength in the economy, despite headwinds from rising mortgage rates and last month's partial government shutdown.

"The reports reinforce the notion that the housing sector is successfully digesting the summer mortgage rate pop," said Mike Englund, chief economist at Action Economics in Boulder, Colorado.

Building permits jumped 6.2 percent last month to an annual rate of 1.03 million units, the highest since June 2008, the Commerce Department said. It was only the second time since mid-2008 that permits breached the 1 million-unit mark.

Last month's increase beat economists' expectations for a 930,000-unit rate. Permits, which lead housing starts by at least a month, rose 5.2 percent in September and were up 13.9 percent from a year ago in October.

A separate report showed the S&P/Case Shiller composite index of home prices in 20 metropolitan areas jumped 13.3 percent in September from a year ago, the strongest gain since February 2006.

Stocks on Wall Street were little changed in thin pre-holiday trade, while prices for U.S. Treasuries rose. The dollar was weaker against a basket of currencies.

House prices have largely been driven by a supply squeeze as a glut of foreclosed properties clears. But the combination of rising prices and mortgage rates means some potential buyers are being pushed out of the market.

This will dampen demand and is expected to gradually slow the pace of house price increases in coming months.

"While demand for housing remains as strong as ever, credit is tight, flood insurance rates are on the rise, mortgage rates are elevated and income growth has not kept pace with price growth," said Stephanie Karol, a U.S. economist at IHS Global Insight in Lexington, Massachusetts.

A Reuters survey published on Tuesday forecast home prices rising 6.5 percent next year, roughly half the pace expected in 2013.

Interest rates have risen sharply since May as markets anticipated the Federal Reserve would start cutting back on its monthly bond purchases this year, with the 30-year fixed mortgage rate surging nearly a full percentage point.

It hit 4.49 percent in September, the highest since July 2011, according to mortgage lender Freddie Mac. But rates have been retreating as expectations of a Fed taper are pushed to early next year, averaging 4.19 percent last month.

The benefits of investing in commercial property versus Residential property

Commercial vs Residential Most people think of residential property when they’re thinking about investing, but commercial property has its rewards too. The benefits of investing in commercial property Leases tend to be much longer – anything from three to 20 years - and they are quite often secured by bank guarantees, which make them a secure investment. Rent is reviewed annually and is usually increased either by the CPI or by 4%, whichever is the greater. Commercial tenants will also tend to maintain the property better as the look and condition of the property is important to their business and their staff. But commercial leases also have added protection for the owner in the form of make good clauses, maintenance clauses and management clauses. The return on invested capital on commercial properties ranges between 7% and 10% net after all costs.  Residential property investors must pay all outgoings and other costs, although of course this can be negatively geared. Deductible rates on commercial property, though, are higher than for residential because of higher depreciation rates. The benefits of investing in residential property You need a smaller deposit, which can be important in particular if this is your first investment property. Depending on your credit history and income, you can even borrow 100% of the purchase price. Commercial mortgages require a deposit of at least 30%. Rates on residential mortgages also tend to be lower. Lenders are much stricter on borrowing criteria for commercial properties and if the property is not let at the time you purchase it, you may have to pay GST. The commercial property market can be less predictable than the residential market (where historically properties tend to double in value every 7 to 10 years). There are also different kinds of commercial property to consider such as commercial, industrial and retail. With proper research, you may find that you are more comfortable making the decision about which type of property to invest in. Although residential leases are shorter than commercial ones, residential properties are generally easier to let, meaning you will have less time when the property is vacant. It can take months to find a new commercial tenant. Whether you choose residential or commercial property, the more you know about your market, the safer your investment will be.

What are the differences in investing in commercial and residential property

The first difference is that commercial property tends to cost many times the price of residential property. Although it is possible to buy small, individual shops and offices at prices that are comparable with those of residential properties, the cost of large, high-quality commercial properties, such as shopping centres, office blocks or large industrial premises, may run into hundreds of millions of pounds. As such, for most personal investors, collective investment schemes represent the only way to gain exposure to commercial property.
Secondly, the uniqueness of most commercial properties outside of high street shops or industrial warehouses makes it difficult for investors to get an accurate valuation without access to professional advice. By contrast, it's relatively easy for residential investors to compare the prices of houses or flats in a given area, based on comparable market activity. Professional, technical advice is crucial for anyone considering direct investment in commercial property.
Thirdly, the lease between landlord and tenant varies significantly between the commercial and the residential markets, particularly given the following:

• Commercial leases tend to last much longer than residential leases - five years or more versus an average of one year (although residential leases tend to be more readily renewable). However, residential property can often entail a higher level of voids than commercial property because of the shorter lease period.
• Commercial property leases have traditionally contained clauses dictating that rent reviews are 'upward only', meaning a property's rent can't be less after review than it was before review.
• The legislation surrounding landlord and tenant relationships is different for commercial and residential leases.
• The responsibilities for repairs and maintenance are different; in commercial properties tenants are typically responsible for these costs, while in residential properties landlords are typically responsible. For landlords of residential properties, these costs can absorb much of their rental income - perhaps more than 30% in some cases.

Residential property is also likely to require more management time (and/or cost) than commercial property. This is because of smaller unit sizes, shorter lease lengths, and a greater obligation for maintenance and repairs.
Finally, the make up of income is different for commercial and residential properties. For commercial landlords, the income from rent is a much greater factor than for residential landlords. In fact, over the period 2002-2007 the average rental income from commercial property investment (expressed as a yield) was about 50% greater than from residential property. For residential landlords - both institutional and retail - there is a need to regularly sell a proportion of their properties in order to realise the increase in capital values to supplement the income from rental.

Self storage UK industry to remain effective and efficient for the clients

Self storage UK

Public storage market is a giant market having abundant cash flow, occupancy and rents offering stable and secure returns. A number of new companies are getting into the business of self storage facilities as it is potentially growing market offering bigger returns and greater rewards.
As the UK economy rebounded and came out of recession, the demand for investment in commercial real estate grew and peak earnings were reported by the self storage facilities owners in UK.
As the mortgage rates is picking up people are selling their homes and moving into small apartments where they require proper dwelling space and additional storage to keep items that they cannot store in a small house.
There are people who are searching for new jobs and are moving into new jobs. They are shifting from one city to another for jobs. During transfer from one place to other people seek public storage options. They need space where they can keep their belongings safely. There are numerous risks in this business. There is a slowdown in construction sector and this can lead to oversupply of self storage facilities leading to saturation in the market.

Safety issues in Self storage UK industry

Self storage UK industry is expected to remain strong and continue growing in the coming years. The managers of self storage should be aware of the latest trends to ensure the customers get the right services in self storage units. Safety is one of the major features that are required in a storage unit.
The customers should be given proper services to be able to operate the unit or room allocated to them safely and even lockers can be provided to the users to allow them to store their valuables. Trust should be built between the store manager and the customers and the money charged for such units should be based on the service.
These days the self storage units hire staff and conduct a background check of their new staffs to ensure the employees working at the units are appropriate for their jobs. The security checks of the employee involve a series of steps of investigations and evaluation of the candidate through different methods. Many store owners spend a huge amount of money in searching for the right manager of the unit and once the manager is found you can train him or her to evaluate his performance and trust him to operate the unit.
As the time passes the manager of the store becomes confident and relationships develop between the manager and the employees. Once the storage owners knows the family background of the employee , the level of trust improves leading to better service and added responsibilities on the shoulders of the employee. This also increases confidence of the manager and employee.
Sometimes, when a relationship based on trust is built , minor actions of the employee or the manager can be predicted and as you go deep into it , you can identify if any of the employee is hiding something from you or not. There can be conditions when a person working with the store at one time does something wrong. The storage owners should be aware of the various difficulties that is faced by customers in renting a room. Security is one of the major aspects on which the self storage rents are determined.
Security aspects of stores should be upgraded from time to time. The manager of the store can be changed and other employees working in the store can also be given the responsibility to handle security. Special security cameras and equipments can be provided to prevent any kind of inconvenience.