Consumer buy-in to self-storage services in Hong Kong has made the industry an attractive investment option, according to a whitepaper released by Colliers International, a commercial real estate services firm. “Self-Storage in Hong Kong: A Growing Niche” highlights factors driving consumers to rent space from storage operators and why the sector is ripe for investment.
“The increasing volatility of prices in various asset markets and the growing difficulty of finding reasonable risk-adjusted returns have prompted real estate investors to look for non-traditional real estate investment opportunities,” according to the report. “Self-storage has come onto the radar because this niche sector offers them the benefits of stable rental income and premium yields.”
Among the key drivers for consumers and businesses are tight living quarters and insufficient storage at residences and offices. Colliers estimates that approximately 852,000 homes in Hong Kong don’t have adequate storage. “If half of them demanded 30 square feet of storage space each, the market size would be 12.3 million square feet, compared to an estimated current supply of 2.8 million square feet,” Colliers analysts said.
As consumers have grown accustomed to using self-storage for seasonal items, they’re becoming “increasingly comfortable with putting items like valuables, sports gear, wine and seasonal clothing in self-storage,” according to the report. “Customers are also attracted by value-added services such as providing moving assistance and receiving products ordered online.”
Tenants are also drawn to security amenities and 24-hour access, Colliers analysts said.
As a result of the increased consumer activity, investors are now examining self-storage as a reliable investment opportunity. “As a non-traditional real estate investment category in Hong Kong, the self-storage sector provides a higher return when compared to traditional buy-and-lease-out investment options for industrial properties,” according to the report.
As a lease investment, a new 20,000-square-foot self-storage facility in Hong Kong will reach 90 percent occupancy in about 18 months, Colliers estimates. “This results in a payback period of about 4.5 years,” according to the report. “Assuming a nine-year lease, the internal rate of return (IRR) is estimated at more than 30 percent.”
For property owners who convert to self-storage, the acquisition cost accounts for more than 85 percent of the total investment amount on a 20,000-square-foot facility. Colliers calculated the IRR for this scenario at approximately 15 percent for the same nine-year period. “Although the internal rate of return of this buying case is lower than the leasing case, the returns of the buying case are more secure,” according to the report.
The 12-page PDF report is available for free download from the Colliers Hong Kong website.
Sources:
- Colliers International: The Path to High Yields?
