European Self-Storage Demand Will Plummet Under Regulatory Pressure

Key Takeaways

• Slowing urban growth, demographic shifts, and digitalization may limit storage demand, weakening Shurgard's revenue growth, pricing power, and customer retention.
  
• Increasing regulatory barriers, market saturation, and new agile competitors threaten expansion, expose the company to margin pressure, and elevate competitive risks.
  
• Strong urban focus, digital innovation, and resilient financial strategies position Shurgard for sustained growth and margin expansion in an underpenetrated European self-storage market.

Catalysts

Engages in the acquisition, development, and operation of self-storage facilities for business and personal use.

• As urbanization slows and population trends across Western Europe potentially turn negative, future demand for self-storage may plateau, limiting Shurgard's core revenue growth engine and eroding pricing power in its largest markets over time. This threatens both occupancy rates and rental income, ultimately weakening long-term revenue growth.
  
• Intensifying regulatory hurdles on land use, environmental issues, and property zoning are likely to increase development timelines and costs for new stores, directly curbing Shurgard's ability to expand its portfolio and diminishing future revenue and earnings expansion.
  
• The company's heavy exposure to Western European markets leaves it vulnerable to regional economic stagnation and rising local competition, heightening the risk of revenue shortfalls and prolonged margin compression as market saturation grows.
  
• Accelerating digitalization and new flexible working patterns may lead both consumers and small businesses to optimize or reduce storage needs, reducing overall stickiness and shrinking average customer lifespans, which will negatively impact occupancy, churn, and ultimately same-store revenues.
  
• The self-storage industry's barriers to entry are no longer insurmountable as new models-such as mobile and on-demand storage-gain traction, increasing customer churn and price sensitivity, and subjecting Shurgard to greater competitive risk, with clear downside to both EBITDA margins and long-term earnings growth.

Shurgard Self Storage Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Shurgard Self Storage compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Shurgard Self Storage's revenue will grow by 9.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 99.1% today to 35.9% in 3 years time.
• The bearish analysts expect earnings to reach €193.7 million (and earnings per share of €1.8) by about July 2028, down from €402.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.9x on those 2028 earnings, up from 9.1x today. This future PE is greater than the current PE for the BE Specialized REITs industry at 9.0x.
• Analysts expect the number of shares outstanding to grow by 1.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.0%, as per the Simply Wall St company report.

Shurgard Self Storage Future Earnings Per Share Growth

Risks

• The European self-storage market remains significantly underpenetrated compared to the U.S., and even a modest increase in customer adoption would outstrip current supply, supporting occupancy and revenue growth for Shurgard over the long term.
  
• Shurgard's continued focus and progress in urban, high-density, and high-income capital cities-alongside 92% of its portfolio held as prime freehold properties-create durable competitive barriers and pricing power, which should support margin expansion and earnings growth.
  
• The company's digital transformation, including e-rental platforms, customer-facing app, and smart Bluetooth access, has driven operational efficiencies that have reduced FTE costs by 30% in certain clusters, sustaining improvements in net margins and operating income.
  
• Shurgard has demonstrated resilience across economic cycles, with high occupancy (around 90%), stable customer retention, and steady rate increases consistently outpacing inflation, all indicating the core B2C need-based nature of its offering will protect revenues and limit earnings volatility.
  
• An extensive secured pipeline, disciplined capital allocation, and a strong BBB+ credit rating equip the company to pursue growth even in adverse financial markets, ensuring that revenue and EBITDA can continue to rise as the company expands, with historical returns on development well above hurdle rates.

Valuation

• The assumed bearish price target for Shurgard Self Storage is €33.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Shurgard Self Storage's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €54.0, and the most bearish reporting a price target of just €33.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €538.8 million, earnings will come to €193.7 million, and it would be trading on a PE ratio of 20.9x, assuming you use a discount rate of 6.0%.
• Given the current share price of €36.8, the bearish analyst price target of €33.0 is 11.5% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.