Self Storage Investors Turn To Asia

Demand for self storage across Asia is on the rise, fueled by expensive rents for small homes, increasing affluence, and work-from-home practices. This increase in demand has piqued investor interest, attracting capital from global private equity firms to pension funds. Many of these investors feel returns from self-storage businesses will be meaningfully higher than other real estate investments as it is counter-cyclical, resilient to inflation, and incurs fixed costs

“Operators and investors started to have a really strong belief that Asia will follow a track that’s probably very similar to the US market maybe 15 to 20 years ago, when they first started to develop,” said Li Fan, managing director of global private equity firm Warburg Pincus and board director of StorHub.

Fan adds that Warburg Pincus started to have “very strong conviction” in Asia’s self-storage sector about five years ago, and when the pandemic hit, industry interest accelerated as investors assessed the "five Ds" driving the market – density, disposable income, divorce, death, and after Covid – decluttering.

Warburg Pincus, through its unit StorHub, bought Storage Plus Corp. for an undisclosed amount last month. It was one of the country’s largest self-storage acquisitions recorded, the firm said, and it continues to look for similar deals.

Graeme Torre, head of Asia-Pacific real estate at APG Asset Management N.V., which has invested in the sector, says the self-storage market in the region is fragmented and competitive in some areas. “We take comfort that self-storage demand is resilient, and customers are generally price insensitive, as such competition from a new operator is unlikely to bring significant challenges to our investments.”

According to Bloomberg, the Amsterdam-headquartered pension investor bought the self-storage provider Extra Space Asia last October in a joint venture, with APG taking a 90% stake and CapitaLand Investment Ltd 10%. They committed an initial equity investment of S$570 million ($417 million) with an option to increase the figure up to S$1.14 billion.

The company continues to review buying opportunities in the six markets that Extra Space is currently in, and is considering expansion into new Asia-Pacific markets including China and Australia through portfolio acquisitions or mergers, said Torre.

Deals involving operational self-storage assets alone, excluding industrial assets acquired for conversion, were worth $797 million last year, up from $445 million in 2019, according to Morgan Stanley Capital International.

There can be challenges when investing, however.

• Companies must have the flexibility to scale as each facility is small.
• Providers must meet changing regulations such as the need for higher fire-safety standards, and offer a range of products such as wine storage or drive-up storage.
• Real estate prices are high and there is a limited availability of suitable city space 
  
  

Despite these challenges, transaction volumes will continue to rise and the market will “grow considerably” over the next three to five years on structural demand from individuals and businesses, said Martijn van Eldik, Jones Lang LaSalle’s Asia-Pacific head of corporate finance.

Within Asia, Hong Kong, Singapore, and Japan lead the way in development, with Mainland China right behind them. The sector is still in an early-development stage in Southeast Asia, allowing for growth as standards of living rise in the region’s emerging economies.

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