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Traditionally not a major real estate investment class in Asia Pacific, the self-storage sector has typically been classed alongside “alternatives” such as student housing and data centres. Today, however, the sector is enjoying the perks of a rapid surge in growth that started around 2003. While Singapore’s 15 or so operators see the City named as the region’s self-storage hub, there are a number of other operators across Asia Pacific, the most active of which include QURAZ in Japan; Kennards & National Storage in Australia; Minico in Hong Kong; and Store It!, Store Friendly & Lock + Store in Singapore.

Why the sudden interest?

Pelham Higgins, Director of Asia Pacific Industrial Capital Markets at JLL claims that the 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.”

How mature is the self-storage sector in Asia Pacific?

Still relatively uncommon in Asia Pacific, the use of self-storage facilities is more widely used in the U.S., UK and Australia. While this is partly a result of the comparative geographical expanse of these countries, 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, yet the consumer base is more diverse.

“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 Higgins.

“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 sqm GFA yet the top five operators in Japan represent about 60% of the local self-storage market led by QURAZ.”

Challenges for Operators & 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 the biggest challenge currently facing self-storage operators is sourcing appropriate real estate stock.

“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.”

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 resulting in a surprisingly high number of would-be self-storage properties which do not have the relevant approval documentation at hand.

Along with the lack of many quality self-storage operators to invest alongside, Higgins believes that the most pertinent obstacle for investors looking to allocate capital flow to the Asia Pacific self-storage sector is the difficulty in acquiring enough scale. Given the difficulty to acquire suitable assets and the amount of capital chasing this sector, especially in major markets like Tokyo, there exists a big investment opportunity for investors to develop facilities with the right attributes for a self-storage operator to acquire and operate.

 

Pelham Higgins

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