28 August 2014

Hong Kong is renowned for apartments that can seem little bigger than shoeboxes, with barely adequate living space, let alone anywhere for storage. This in turn leads to a need for self-storage, with a new whitepaper from Colliers International suggesting the demand could be up to four times the current supply.

"Self-storage is a niche sector in the property market, and till now has been largely overlooked,” says
Arthur Yim, Manager of Research and Advisory Services at Colliers International Hong Kong. “Yet with Hong Kong people becoming more accustomed to using self-storage, plus the benefits of stable rental income and premium yields, it’s a sector that looks set for significant growth.”

The whitepaper, Self-storage in Hong Kong: A Growing Niche, estimates that about 820,000 households are living in homes without a storage room. If half of them demanded 30 sq ft of storage space each, the market size would be 12.3 million sq ft, compared to an estimated current supply of 2.8 million sq ft.

“We have found that domestic users are shifting from mainly storing bulky and/or infrequently accessed items, to becoming increasingly comfortable with putting items like valuables, sports gear, wine and seasonal clothing in self-storage,” says Arthur. This trend relies on self-storage providing a climate-controlled environment, which is hard to achieve in a private flat. Customers are also attracted by value-added services such as providing moving assistance, and receiving products ordered online.

Importantly, too, self-storage must be accessible and secure. Customer confidence in self-storage is rising as a result of operators installing automatic identification systems enabling 24-hour accessibility, along with security systems such as CCTV.

According to Wayal Chiu, Senior Director, Industrial Services Hong Kong, locations are among the keys to success. “Property options in industrial building clusters on Hong Kong Island could target high-income households in relatively small residential properties, while larger and cheaper spaces are available in the New Territories, which could suit operators seeking to consolidate multiple addresses under one roof,” he says.

Leasing in industrial buildings may be problematic given the government is enabling conversions to office, retail and hotel uses. This means that minimum tenure is important for any operator renting space for their self-storage business, which might require over four years to achieve payback. Joint ventures with property owners can ensure the required location stability, couple with alignment of interests.

“Of course, buying a property for conversion to self-storage obviates the risk with renting, and while the return rate may be lower, the returns are more secure,” says Wayal. “Other risks remain, though most can be mitigated.”

The report acknowledges that while local economic performance could falter, the extreme undersupply in self-storage makes it likely to outperform other property sectors. Similarly, there could be price volatility triggered in overseas markets, but the industrial sector should remain relatively strong.

Selection of the self-storage site is another potential risk, but is one the operator has initial control over. Private customers favour sites that have ready accessibility to public transport, such as the MTR and buses. Corporate customers – such as companies finding it impractical to utilise storage in costly office space – seek good road access.

“With real estate investors increasingly seeking non-traditional investment opportunities, it is unsurprising that self-storage has come onto the radar,” says Wayal. “The returns possible in this sector are compelling. Expansion in Hong Kong self-storage is certain.”