The Challenges Facing Japan's Self-Storage Operators and the Solutions They Create to Meet Them
Copyright 2014 by Virgo Publishing.
By:
Posted on: 11/29/2011



 

By Tatsuya Saji

The self-storage business is growing slowly and steadily in Japan, especially in major cities such as Tokyo and Osaka. According to a recent study by private marketing-research company Yano Research Institute, the size of the Tokyo self-storage market in 2010 was more than 26 billion yen ($340 million), and it's growing. One of the reasons is the huge demand for the service.

There are approximately 128 million people living in Japan, an island smaller than the state of California. Typical two- and three-bedroom houses are 80 to 100 square meters and cost 20 million to 35 million yen or more, depending on how far they are from major cities and train stations, schools, shops, etc. The Japanese generally live in smaller houses in areas of higher population density. Living space in Japan is 13 times more dense than that of New York City. Needless to say, people are hurting for more space.

Lack of Awareness, Legal Concerns

Operators of self-storage businesses in Japan face many of the same challenges U.S. operators once experienced. One of the biggest obstacles is public awareness of the service.

The Japanese don’t yet recognize self-storage as a convenient lifestyle option. We call self-storage facilities “trunk rooms,” “suitcase rooms” or “shunou box (storage boxes),” as units are much smaller than those in Australia, Canada and the United States. People know what they are but not how to effectively use them.

Also, the price of self-storage might seem a little too expensive for general consumers for what they get. It seems the overall marketing strategy needs a few improvements to create better public awareness.

Two other obstacles Japanese operators regularly grapple with is rental agreements and  tenant defaults. Many use rental agreements based on the 1991 “Act on Land and Building Lease,” which was made to better protect tenants. It’s not an uncommon practice to hold off on auctioning unpaid units or delinquencies. Instead, operators will move a unit’s contents or hold them for long period to avoid a possible legal mess. In addition, rental agreements among operators vary greatly in their language. The Rental Storage Association of Japan is working toward standardizing these agreements to protect operators.

Simply renting a unit is vastly different in Japan than it is in the United States. Many operators have a tendency to shy away from renting multiple units within the same day. Bringing a truckload of personal goods to the facility and renting a unit is almost impossible in Japan. The process in which to secure a unit needs to be simpler.

Most Japanese self-storage companies operate facilities with no onsite manager. Quraz, one of the major operators, is an exception. The company’s style of operation and service is similar to that of a U.S. facility in many ways and is rated high in the country.

Financing New Construction

The Japanese self-storage industry is still in it’s infancy and relatively new to general consumers and financial institutions. A lack of awareness is one of the biggest obstructions for operators when it comes to financing and marketing. It’s hard for new investors to enter the self-storage business. Most financial institutions in Japan don’t recognize or have enough knowledge of the business as a main category of real estate.

Major banks in Tokyo might consider financing a self-storage project, but interest rates would be 0.3 percent to 0.5 percent higher than those of other real estate projects such as apartment complexes, office buildings or other traditional rental properties. For self-storage development, the hurdle is much higher in general, and lenders or investors require high-rated credits and security for new projects.

In addition, there are still many self-storage facilities constructed using freight containers as storage units. These are often lucrative because they require less investment. While they’re less expensive to rent, they don’t have the security features of traditional self-storage. However, many cost-conscious consumers can’t differentiate between the two products. Many operators would like to see stricter zoning ordinances to control locations where facilities with freight containers are built and operated.

A Flexible Offering

The Japanese yearn for the American lifestyle. For many, it’s only in movies where people get to have large houses with extra space and rooms for hobbies or whatever your heart desires. People pay extra fees for outdoor parking near their residences, as they don’t have private garages. It may be hard to believe, but having a private garage for your car is a dream for the average Japanese.

Reise Inc., one of the Japan's top storage operators, has introduced “Reise Hobby," a new flexible space that can serve as a storage/garage/hobby room. One way the Japanese market is overcoming the lack of space is through a new flexible offering. Reise Inc., one of the country's top storage operators with approximately 360 traditional self-storage facilities in Tokyo and Osaka, is expanding its business share with new rental-space ideas. The company’s head engineer and designer came up with the “Reise Hobby” concept for new flexible space that can serve as a storage/garage/hobby room. It features a secure indoor garage and space for automobiles or motorcycles on the main floor, and a mezzanine or full floor on the upper level.

Reise currently operates fives of these new hobby-concept locations. Each achieved nearly 100 percent occupancy within a few months of opening. The average rent is between 78 million yen to 93 million yen ($1,000 to $1,200) a month. There’s also a waiting list for new tenants. The rooms are not designed as apartments, so tenants are not allowed to live there, but people seem to enjoy the lifestyle with extra private space away from their homes. Reise is planning to build more and is already discussing a rental-rate increase.

While the self-storage market in Japan is growing, operators and investors still face many changes, including finding suitable land for development, a lack of readily available financing, legal questions  and, most important, public awareness. However, the driving demand for the service will help the industry overcome these obstacles and continue toward growth and prosperity.

Tatsuya Saji is CEO of Trade Winds International Inc. He’s lived in United States for  more than 30 years and worked as a consultant for the self-storage industry in Japan, where he’s involved with the largest and only government-endorsed self-storage association, the Rental Storage Association of Japan. For more information, e-mail rsaji@trwinds.com .