Sun, Jul 16, 2017 page15

• Tiny HK homes a boon for self-storage industry

  • By Narae Kim / Bloomberg
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  People often complain about Hong Kong’s notoriously tiny apartments, but for investors like Blackstone Group LP, opportunity can be found in small places.

  Welcome to the world of self-storage.

  The majority of Hong Kong’s 7.4 million residents live in cramped homes with limited space for clothes, shoes, books, sports gear and other items. So there is a desire to find somewhere else to store non-essential belongings.

  “People don’t want to give up their stuff, things that they have an emotional attachment to,” said Ralph Myers, a 38-year-old who started using a storage unit six months ago.

  The theater set and costume designer pays HK$250 (US$32) per month for the space, which is packed with his own furniture.

  “Apartments in Hong Kong are so small there’s not that much difference between my storage unit and my place,” Myers said in an interview. “Essentially, my storage unit looks like a furnished apartment itself — bed, chairs, table and so on — just without a kitchen or a bathroom.”

  Chris Heady, chairman of Asia-Pacific and head of Asia real-estate at Blackstone, last month described the sector as “interesting” at a panel discussion at the Wharton Global Forum in Hong Kong.

  Blackstone invested a reported HK$420 million in MiniCo Self-Storage in March 2015. The company is now called Minibox Self Storage (美利倉).

  Self-storage supply in Hong Kong in 2015 was 0.04m2 per person — way behind the US figure of 0.7m2, according to a report by CBRE Group Inc.

  At the end of that year there was a shortfall of about 18,580m2 of self-storage space in Hong Kong.

  The territory is “the least developed” core Asian market when it comes to self-storage, said Simon Tyrrell, managing director at E3 Capital Partners in Hong Kong.

  E3 Capital acquired an operator called Big Orange Self-Storage (橙色空間) as part of a takeover.

  It has sold that, but plans to start a premium service through its business RedBox Storage (紅盒迷你倉), Tyrrell said.

  “If you look to Western markets, Asia is massively under-serviced and with the rise of the middle class, logic tells you that demographically the industry has to be set for a massive increase,” he said.

  In Tsing Yi in Hong Kong’s New Territories, a 1.85m2 storage unit — large enough for a two-seater sofa, painting, small dresser, mattress and 24-inch TV — costs from HK$400 for a one-month contract. A 9.3m2 unit — big enough to take the above items and a filing cabinet, five document boxes, a lamp, a computer, a golf bag, a chair, two bags of clothes and a dining table — costs from HK$2,750 per month.

  The sector is attractive to Hong Kong investors because of its strong regular income growth and the fact that high occupancy levels are underpinned by a stable tenant base, Jones Lang LaSalle Inc (JLL) said in a report last month.

  Millennials and the younger generation are typically more open to self-storage, said Bob Tan, JLL’s national director for alternatives, Asia-Pacific. “If you go one or two generations back, people like to have their stuff in their own houses, they don’t want to go outside and use a third-party provider.”

  About three-quarters of self-storage customers are individuals. Factors driving demand include marriage — couples combine two households into one — and divorce, where one person moves out and needs somewhere to store possessions.

  The rising death rate is another driver, as people inherit furniture and heirlooms that will not fit in their homes.

  “As people pass on, their belongings must be sorted and cataloged by their relatives,” the CBRE report said.

  The widening gap between property prices and wages has also forced some homeowners to downsize, reducing space for their belongings.

  The tininess of Hong Kong homes is well-documented.

  CBRE said the average household space per person is just 15.5m2. That compares with 22.9m2 in Singapore, 37.3m2 in the UK, 79m2 in Australia and a cavernous 91m2 in the US.

  Colliers International has estimated that 852,000 private residential units in Hong Kong — 76 percent of the total — lack dedicated storage space.

  Skip Schwartz, managing director of private real-estate equity for Asia-Pacific at Heitman LLC, a Chicago-based property investment management firm, said there is a “compelling” case for self-storage in Hong Kong.

  Tan said he expects the Hong Kong self-storage market to post 3 to 5 percent annual growth over the long term.

  “Self-storage doesn’t require many staff, and operators tend to use a lot of automation for invoicing, security and access,” he said. “It is also easier to invest, manage and exit when compared to other alternatives.”
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