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Britain-listed self-storage property firms, with shorter leases and wider client bases, will likely outshine peers that own more conventional offices, malls and factories by snaring higher rents in a recovering economy.
With leases as brief as a week to a few months aimed at businesses and house movers who need interim space, storage owners such as Big Yellow and Safestore can quickly boost their income as occupancy picks up from the worst property downturn in decades.
"Storage companies have an attractive advantage at this point of the recovery cycle ... There are few property firms with that inherent, internal growth prospects," said Robert Promisel, who manages the Invista Global Property Securities fund.
"If you look at the magnitude of what they have developed and what the pick-up would be by simply increasing occupancy, it's very substantial," said Promisel, who is "overweight" on Big Yellow, Britain's largest storage firm by market value.
Britain's economy grew almost twice as fast as expected in the second quarter of this year, buoyed by a sharp pick-up in services and the fastest rise in construction output in half a century, official data showed last week.
Short leases turn into a key advantage for storage firms in an improving economy, allowing them to raise rental rates quickly as demand for their services bounces back.
"For the other reits [real estate investment trusts], earnings are going to be flat because they've got relatively fully occupied portfolios, so there's not a lot of vacancy for them to lease up and enhance the income," said Execution Noble property analyst Michael Burt.
Some offices and malls - typically on leases of between 10 and 15 years - could also be "over-rented", meaning their rents are well above market rates, Burt added, leading to sharp drops in income when leases expire and landlords adjust asking rates. With persistent gloom over the weak global recovery fuelling fears of a double-dip recession, storage suppliers such as Lok'n Store should still hold up relatively well, analysts say.
"I suspect they will be less volatile," KBC Peel Hunt analyst Anthony Bell said, adding self-storage companies were set to continue outperforming commercial property reits if serious economic problems persist.
Self-storage firms were relatively resilient in the recent recession, for example, by offering temporary space to firms shedding staff, and should be able to navigate repercussions of the country's austerity measures, industry executives said.
"Whether it's small businesses wanting flexibility or individuals looking for a lifestyle change, we're spreading the risk over thousands of different customers," Big Yellow chief executive James Gibson said. "It isn't immune in a downturn, but with demand being so multi-layered, you're never going to get to a point where you suddenly lose all your customers at the same time."
Concerns remain, however, that the self-storage industry, which typically counts house movers as its biggest customers, faces headwinds from a weakening housing market, reflected in falling prices and low mortgage approval rates.
But storage executives say they remain positive, putting faith in the prospect of housing activity rebounding from last year's low base, and helped by changes in buying habits. "If you take the last six months and the last quarter particularly, our inquiries in relation to house movers have actually been very buoyant," said Steve Williams, chief executive of Safestore, which runs 117 facilities across Britain and in Paris.
"And that is in a market where house purchase is at a very low level in the UK," he said, attributing the rise to more homeowners being prudent by selling their homes before finding new ones, hence raising the demand for storage.
This article can be found on South China Morning Post, Wednesday, August 4, 2010

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