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Demographics, Economics Drive Asia Self-Storage Sector

Demographic and economic factors across Asia are making self-storage more popular with local consumers and investors. Living space has shrunk across the continent as urban populations have densified, increasing the need for storage space. At the same time, high rental rates are driving real estate value, making self-storage attractive to investors and developers, according to Asia Asset Management, a news site specializing in investments and pensions.

“Storage is gaining increased recognition in Asia as populations mobilize and living spaces shrink,” wrote Skip Schwartz, managing director of Asia-Pacific private equity at global real estate investment-management firm Heitman LLC. “The sector’s low saturation, healthy yield premiums over traditional assets, and growing institutionalization are contributing to its transformation into a key component of smart portfolio construction.”

While there’s only .5 square feet of self-storage space available per person even in the most saturated markets, population density continues to increase in cities like Hong Kong, Seoul, Singapore and Tokyo. For example, Tokyo’s population has increased 15 percent since 2000, while Singapore’s has jumped 45 percent during the same period, according to government statistics.

Traditional consumer drivers like death, divorce and moving, as well as commercial-business needs, are expected to push self-storage demand and rental rates in urban markets due to low supply. “Asia’s swiftly ageing populations and changing cultural norms should support demand for self-storage,” Schwartz said. “As young professionals increasingly choose to live in and around urban centers, they will need space to keep important household items as their parents pass on or enter aged care facilities. More relaxed attitudes toward divorce and cohabitation also promote mobility, ultimately increasing the need for self-storage.”

High demand coupled with low supply means high rental rates, including some markets that average two to three times more per square foot for self-storage than for apartments or industrial rentals, according to Schwartz. That dynamic is driving development demand, despite the low availability of available land. “This makes conversion from both warehouses and smaller-scale residential plots attractive,” Schwartz wrote. “In fact, self-storage rents rival those of B-grade offices in some Asian cities, offering potentially lucrative cash income from underutilized land.”

Strong cash flow achieved by operators has helped increase real estate value and drive investor interest. Capitalization rates for self-storage properties in Singapore and Tokyo are estimated at 7 percent and 6 percent, respectively, “implying premiums easily over 200 basis points to traditional assets in both markets,” Schwartz said. “We expect yield spreads to compress as the sector matures and attracts more institutional capital, like in North America and Europe.”

Founded in 1966, Heitman has approximately $43.5 billion in assets under management. It first invested in self-storage in 1996 in North America and today has completed or committed to 35 self-storage investments across Asia, Europe and the United States. The total capitalization of its self-storage investments exceeds $9 billion, according to Schwartz.

Asia Asset Management, Demographics, Fundamentals Buoy Self-Storage Prospects in Asia Pacific

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