by Mark Lusky
Developments across the pond are providing some insights and ideas for US self-storage owner-operators. One of the most dramatic is the industry impact of a 20% value-added tax (VAT)-think sales tax-imposed last October.
With more and more states in the US legislating or contemplating sales taxes tacked on to self-storage rentals, the UK's experience to date offers a sense of how new or increasing sales taxes here might impact the marketplace.
Inside Self-Storage offered an optimistic assessment in a May article: "U.K. Self-Storage Industry Shows Strong 2012 Numbers Despite Imposition of VAT...Self-storage operators in the United Kingdom have effectively absorbed the impact of the 20 percent value-added tax (VAT) imposed by the government on the industry last October, according to a Self Storage Association of the United Kingdom (SSA-UK) survey. Results show that many operators chose to shield customers from full price increases by phasing in the VAT during the year, losing just 5 percent in average net rentals in 2012."
The article continues, "In addition, national average occupancy remained stable, declining 2 percent in 2012 to 68 percent for the year, with the average length of stay per customer actually increasing to 41 weeks, according to the survey." This may bode well for US states that ramp up self-storage sales taxes in a quest to find more revenues.
Another British trend with potential ramifications for the US is also addressed in the article: "Operators may also benefit from emerging trends in the British housing market...A recent survey by the Royal Institute of British Architects indicated a majority of homeowners in newly built houses reported insufficient storage space."
Whether or not this insufficiency is due to smaller home living spaces or larger amounts of stuff, the bottom line may be positive for the US self-storage industry as well.
Longevity of tenant contracts also appears to be on the rise. The UK's Economist points out, "At Big Yellow, a British firm, 37% of space is filled with stuff that has been there for over three years."
One correlation that can be made from these trends is that people who store their stuff due to lack of space in their homes may view it as more of a long-term proposition than the more transient nature of storage due to economic distress and the like. With rising real estate prices and consequent growth in micro-unit building in the US, it follows that average stays per tenant will continue to increase here.
Self-storage is big business in the UK, with business use accounting for 42%, up from 36% in 2010, according to the Inside Self-Storage article. A look into the crystal ball offers the theory that the rise in business usage across the pond is tied to self-storage companies marketing more aggressively to new sectors in the wake of the VAT. Given the relative economy of self-storage units for businesses vis a vis other professional solutions (e.g., renting more office space), the increases driven by the VAT may be less significant to this group than personal renters.
Developments across the pond may ripple through the US as well.