Shrinking space in Asia's cities fuels a rise in self-storage
As space in some of Asia’s big cities become ever more squeezed, an increasing number of businesses and consumers are turning to self-storage facilities to better manage the space available in their offices and homes.
Such self-storage facilities – from small rooms to entire warehouses which can be rented for set amounts of time – are widely used in the U.S., UK and Australia but are only just making inroads in Asia Pacific.
While this is partly a result of the comparative geographical expanse of the U.S and Australia, social change and mobility are also contributing to increasing demand, coupled with a growing desire for the smaller units of inner-city living.
In Singapore, the first facility was opened in 2003 and there are now about 45 self-storage buildings in the market from operators including Store It!, Store Friendly and Lock + Store. They’re also becoming enjoying a rapid surge in growth across Asia Pacific with operators including QURAZ in Japan, Kennards & National Storage in Australia and Minico in Hong Kong.
“Nearly half of the users of self-storage facilities in Singapore are corporates who tend to provide a more consistent level of demand compared to individual private users,” says Pelham Higgins, Director of Asia Pacific Industrial Capital Markets at JLL.
“We are increasingly seeing corporates use self-storage facilities in markets like Hong Kong where finding sufficient office space can often be a challenge. In Tokyo, however, the great majority of the 800 facilities in the Japanese Capital are less than 3,000 square meters gross floor area yet the top five operators in Japan represent about 60 percent of the local self-storage market led by QURAZ.”
Where’s the investment opportunity?
Higgins says the evolving self-storage sector offers investors exposure to a growing consumer base that is moving into smaller housing but still needs separate storage for discretionary and seasonal household items.
“As the major real estate sectors continue to face yield compression, investors are increasingly looking towards alternative sectors which benefit from very stable rental income and a premium yield spread over the core sectors,” he says.
“Along with the current levels of pricing in the major sectors, the prospect of rising interest rates is also forcing real estate investors up the yield curve where self-storage is becoming more popular.”
Challenges for operators and investors
Despite the sector’s recent growth spurt, both operators and investors still face challenges when entering the Asia Pacific market. Aside from the time it takes to gain traction and awareness, Higgins believes that sourcing appropriate real estate stock the biggest challenge facing self-storage operators.
“The major groups who are in expansion mode across the region have a preference to own their real estate assets compared to many of the local Japanese operators who lease their assets,” he says.
Buying the right property for a self-storage operator involves finding a building which is suitable in size; location; floor loading; zoning; and is either empty or leased to no more than one tenant. Furthermore, in Japan, regulation dictates that all the relevant building approval documentation must be in place before the asset can be converted to self-storage – which is proving to be a stumbling block for many properties.
There’s also currently a lack of quality self-storage operators to invest alongside and difficulties in achieving sufficient scale in Asian markets, says Higgins.
However, the difficulty in acquiring suitable assets and the amount of capital chasing the sector, especially in major markets like Tokyo, also provides investors with opportunities – namely to develop facilities with the right attributes for a self-storage operator to acquire and operate.
And as living space decreases, storage space could well need to rise.