The impact of Covid-19 on the self-storage sector in Europe
[This blog is a translation of the original Dutch version published on May 21, 2021]
2020 has gone down in history as the year when a quirky virus held the whole world hostage. Covid-19 has had an impact on (almost) all sectors. What about the self-storage sector in Europe?
The general financial situation of a self-storage can be assessed - albeit simplified - using three parameters: property prices, occupancy rate and rent collection.
The impact of real estate prices
Property prices are important to the self-storage operator in two ways: it determines the value of current premises and affects expansion plans through acquisition of property . JLL reports that the take-up volume for industrial and logistics property in Belgium for 2020 is at the third highest rate in the past 10 years. Driven by the increase in e-commerce, logistic real estate did particularly well. Although the take-up volume for semi-industrial real estate decreased compared to 2019, demand remains very high.
Conclusion: The pandemic does not immediately affect the value of self-storage real estate. Operators of a self-storage facility located near a logistical hub even saw the value of their property rise! (Source: JLL)
The effect of the occupancy rate
The lockdown months of March, April and May 2020 resulted in a status quo in terms of occupancy rate. On the one hand, no new tenants could be attracted, on the other hand, existing tenants' rent continued to be paid due to the limited possibilities to pick up and move out their belongings.
The 2020 Fedessa survey confirms this trend. The occupancy rate at the two reference months, February and June 2020, does not differ much (overall occupancy rate is 79%). The occupancy rate in June was even slightly higher in many countries. We saw the same trend in the United States. Data for the second half of 2020 is not yet publicly available. In view of the still to be expected real impact of the coronavirus crisis on the economy -when government support measures are withdrawn- a decline in occupancy cannot be ruled out.
In the professional renting segment, bankruptcies are likely, which may in turn have an effect on the occupancy rate. The fact that private person tenants tend to stay put is an argument for assuming that self-storage owners do not immediately have to fear a decline in occupancy rates in 2021 (source: Inside Self-Storage).
What about rent-a-collection?
A high occupancy rate is great, but it does not help self-storage operators much when their tenants have trouble paying rent. The lockdown months and the first months thereafter made this (extra) clear. During this pandemic, self-storage operators have to deal with tenants who pay late, request a postponement of payment or ask for a waiver of (part of) their rent. Best case scenario, this disrupts the landlord's cash flow. Worst case scenario, it leads to termination of the lease agreement along with the risk of being left with unpaid rent.
The Fedessa 2020 survey reports that in May 2020, 90% of rents were collected within the respective payment periods. In our view, data from May 2020 provides an incomplete picture of the impact of Covid-19 on the timely payment of rents. Indeed, payment difficulties will not occur immediately in the first months of the crisis (or during the period of government support), but at a later stage.
Payment problems can be the precursor of a (temporary) decline in occupancy rates. On the other hand, one can assume that new tenants who decide to rent a self-storage unit today, have been able to assess the impact of Covid-19 on their financial situation. This in contrast to current tenants for whom Covid-19 is an unforeseen circumstance.
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