Article

Self storage on the rise in Hong Kong

January 28, 2022 / By  

With a large population, extremely tight living space (~150 sq. ft/person), and robust e-commerce businesses, demand for self storage facilities in Hong Kong is expected to sustain in the coming years. The market, therefore, enjoys a high level of acceptance to the business model and occupancy level. According to the SSAA Annual Survey 2020, the average occupancy of self storage in Hong Kong remained over 80% during 2018-19, one of the highest among Asian hub cities. The outlook also looks promising as Apple Storage forecasts that the sector will likely see 10% annual growth over the next three years.

Figure 1: Average occupancy of self storage facilities in Asian cities (2018-19)

Source: SSAA Annual Survey 2020, JLL

On the supply side, the existing stock of industrial land available for self storage development shrunk over the past two decades, as mentioned in a study by Planning Department in December 2021. The total industrial land area (Industrial and OU(B)) slid by approximately 14.5% from 2005-2020, while the total GFA dropped by 7.1% during the same period. Among the current occupiers of industrial buildings, a mere 3.9% of the warehouse/storage floor space was occupied by self storage operators.

Figure 2: Total industrial land area (ha) in Hong Kong (2005-2020)

Source: Snapshot of the existing industrial stock, Planning Department, December 2021

Figure 3: Total GFA (million sqm) in Hong Kong (2005-2020)

Source: Snapshot of the existing industrial stock, Planning Department, December 2021

The supply/demand dynamics of the self storage sector is conducive to long-term rental prospects, and naturally, that draws keen interest from investors. In addition, the self storage market in Hong Kong is highly fragmented. In a RedBox market research, there were 90+ operators and 400+ facilities in 2019. Among those, approximately 60% of the operators operate only one facility, while a few sizable operators manage more than 50 facilities each in the city. Given the fragmented nature of the sector, the barrier to entry may be more surmountable with mergers and acquisitions as an option.

However, investing in the sector is not without challenges and risks. For example, relevant zoning rules have to be carefully reviewed. Self storage facilities are permitted to operate in industrial buildings located in Industrial or OU(B) zones provided they comply with the lease terms and conditions, or their owners have obtained the relevant waiver (including the special waiver for wholesale conversion of industrial buildings). On the other hand, if the relevant land lease specifies or permits “industrial” use only, landlords and operators may face potential challenges from authorities regarding a breach of lease from operating self-storage facilities.

Another major risk arises from the industry’s regulatory environment. A deadly fire incident in Ngau Tau Kok in June 2016 prompted the authorities to impose considerably stricter regulations on the industry and operators. Since then, various government departments (e.g., Buildings Department, Fire Services Department) have promulgated stricter policies for self storage operations, such as minimum width of aisles, number of exits and windows, a minimum distance between the ceiling and the top of the storage cubicles, and the requirement of sprinklers. The tighter regulations decrease the efficiency ratio of facilities to an estimated current level of 40-50% from previously over 60%. Inevitably, this leads to lower returns on investment.

Subscribe
Notify of
guest

0 Comments
Inline Feedbacks
View all comments

Talk to us 
about real estate markets.