Asia's self-storage market offers attractive rental yields, Chicago investment firm says

By Cheryl Arcibalcheryl.arcibal@scmp.com / https://www.scmp.com/business/companies/article/3003351/asias-self-storage-market-offers-attractive-rental-yields?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | April 2, 2019 3:02 PM SGT
Chicago-based real estate investment firm Heitman is betting on the self-storage market as an emerging theme in commercial properties in Asia.
Heitman, which oversees US$41.7 billion in assets, hopes to expand its investments in mini-storage concepts in Asia, adding to a portfolio of such holdings in Australia, Singapore, and Japan.
Mary Ludgin, senior managing director and director of global investment research at Heitman, said self-storage makes sense in Hong Kong, given the small size of the average flat, and her company had identified opportunities.
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"It's predicated on the ­assumption that the individual may have an apartment that is small and may not have space to store their spare equipment or their ­furniture for another season," Ludgin said.
She added that net operating income growth for US self-storage properties has exceeded that of all other commercial property types over the past 20 years on average.
"One of the things we like about it is it typically takes on income that is much higher than any other property type, and that income is more stable over time than any property types," Ludgin said. "There's a global quest for high-yielding assets, and that's part of the backdrop for self storage."
Of Hong Kong's private housing stock, roughly 76 per cent or 852,000 flats, lack a dedicated storage space, according to Colliers International.
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Singapore recently boosted guidelines for developers when it comes to square footage of the average home. These new rules stipulate a minimum size of 85 square metres (915 square feet), up from 70 square metres previously, or three times larger than the 300 sq ft set by Hong Kong's Urban Renewal Authority. However, Hong Kong's tiniest flats can go as small as 123 sq ft, less than the size of a parking space.
Mary Ludgin, senior managing director and director of global investment research at Heitman. Photo: May Tse
Data provider Dealogic said that there have been 12 mergers and acquisitions involving self storage spaces in Asia since 2015, worth at least US$835 million.
"As flats get smaller and more expensive, people are cutting down on the storage space at home and moving items off site. Small businesses are doing the same," said David Faulkner, managing director for valuation and advisory services at Colliers Asia.
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"Self-storage is most popular in high value locations such as Hong Kong and Singapore, but all major cities present future opportunities," Faulkner said.
Faulkner said it is important to get the client mix correct, as short-term rentals to individuals and small business can be risky.
"However, demand in Hong Kong is strong and customers often enter into long-term storage contracts," he said. "If the operation is contracted out to an established operator then risks for the owner are quite low."
Faulkner added that bringing older buildings into compliance with fire regulations will add to the costs for self storage operators.
Bringing older buildings into compliance with fire regulations will add to the costs for self storage operators. A mini-storage in Kwai Chung. Photo: Nora Tam
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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