SteelStorage

 

The Self-storage industry is still in early stages of development in Asia and there is a long way to go before reaching the market penetration levels of the more developed regions of America, Europe or Australia. That said, the industry clearly has established itself in Japan, Hong Kong and Singapore; all areas with high population density, concentration of wealth and consequently space at a premium. Add to that an ever increasing acceptance of western (materialistic) values and developers have found receptive customers to outsourced storage solutions.

 

While the industry may have established itself, recognition, even in the most advanced markets, is still very low. Focus therefore remains on developing the concept in each market, building brands and gaining industry acceptance and recognition. As Marilyn Leslie, President of Minico’s Asian Operations says: “The Self-storage industry has made great progress in educating the market as to the benefits and desirability of self-storage.” Mike Hagbeck, CEO of Extra Space in Singapore further elaborates: “The ‘western’ self-storage product cannot simply be duplicated in Asia and rolled out en-masse. Market dynamics, cultural differences and historical experiences all present new challenges and learning as the industry develops.”

 

Further, developers are of course fighting to get attractive sites for development. Angus Miller, CEO of Big Orange, who has developed several sites in Singapore and Hong Kong over the last year, says: “Our development is limited to the availability of good sites and these take time and effort to find, let alone acquire. The volatility of the Asian property market also must be considered.” Certainly the lack of easily accessible locations is a real issue in Asia where cities are densely populated and land is already used up. Changes in the economy do, however, offer conversion opportunities. Continuous outsourcing of traditional manufacturing industries to areas offering cheaper labour and lower cost of operation means that facilities, for a relatively modest cost, can be converted to serve a different use. Close collaboration with local authorities to gain the necessary approvals is a pre-requisite as is a good understanding of the underlying valuation techniques for properties based on understanding of possible uses and therefore market attraction. Freehold vs. leasehold considerations and legislative stability must also be considered.

 

Consider also the state of the overall economy. As the regional economies expand companies are fighting to get a foothold and authorities are simultaneously trying to promote and protect certain ‘critical’ or ‘desirable’ industries. Regretfully self-storage is not always at the top of that list… While this perhaps is understandable, there is no doubt that self-storage is an attractive part of overall developments as it often offers facilities a ‘second life’ and indeed a necessary part of the modern economy.

 

As Asian economies move from a not only a production location but also to a consumption market in its own right, opportunities will appear. Other industries have been quick to recognise that the economic activity is bringing opportunities for solutions and services to a new affluent consumer market. Certainly the potential is enormous: As the US surpasses 7 square feet of storage space per capita; no country in Asia at present has more than 0.1 square feet per capita. With the rapidly expanding economies of China and India bringing about a real middle class in these two most populous countries, the regional potential becomes apparent. 

 

Table 1

(Self-storage Association numbers and author’s estimation, numbers rounded)

 

The Asian markets do, though, develop differently. Acknowledgement and consideration of local customs and peculiarities are pre-requisites before starting operations in Asian markets. Also, not only do unit mix and sizes differ in each market, but also location and average facility size vary greatly.

 

Consider the case of Hong Kong vs. Singapore: the two countries are often compared since they have great similarities in geographical and population size, wealth development, strategic position and location etc. When looking at the below table, the difference in the approach to self-storage soon becomes apparent.

 

Table 2

(end 2007 approximate numbers, author’s estimation)

 

Market penetration in both markets is the about same but the approach in getting the product to the customer clearly is very different. There are good reasons for this such as available infrastructure, facility layout, and the cost of real estate. Further, while storage facilities in both markets are primarily conversions, the types of buildings available for conversion vary greatly as well as building size and regulatory environment through which to gain the required approvals.

 

The real difference, however, is in the approach the operators have taken when establishing the market.

 

The Singapore model is a Hypermarket model with large facilities that customers are willing to travel to. Ease of access for customers and prominent location are the key facility drivers. Operators in Hong Kong have to a larger extent followed a “7Eleven” like strategy, where dots on the map and proximity to the customer are key drivers. Facilities are less identifiable due to shared use coupled with signage restrictions and marketing is therefore often done through media advertising. Clearly for an operator, exponentially increasing the number of sites will complicate operations and benefiting from economy of scale becomes difficult with many smaller sites. Various arrangements through joint ventures, site management agreements and franchise models are therefore pursued.

 

Japan too has seen a unique approach to self-storage. The development from the traditional containerized ‘trunk rooms’ to a sleek and modern storage solution with air-conditioning and carpeted floors has been readily accepted in Japan, but with industry recognition figures at hardly more than 20%, there is still a long way to go.

 

There is interest in getting self-storage off the ground in other Asian markets too – in particular countries such as South Korea, Taiwan, Thailand, India and China look to be promising markets. They represent a real chance for the diligent entrepreneur to gain an early foothold and help shape the industry and effectively set the benchmark. The traditional resistance in many Asian markets to being first-to-market must be kept in mind. The Chinese, in particular, have great resistance to being first and prefer following up on opportunities where marketability already has been proven. Of course, someone eventually has to take the first step and may very well find a very receptive market to new storage services and solutions.

 

The Australasian Self-storage Association is taking an active part in promoting the industry in Asia and does offer support to aiding expansion to the region. The Asian branch has recently been set-up and is coordinating a sound common structure for all regional operators to ensure proactive management of the issues that other regions already have encountered over the years. This includes contracts and regulatory support.

 

Foreign based entrepreneurs may further consider linking up with local partners, who may very well be able to limit at least some of the risk with setting up operations in a new market. Language, regulatory and legal advice, labour, subcontractor and project management support etc. are just a few of the issues that need to be addressed before entering into a new market. 

 

Self-storage in Asia may be the next great opportunity, but it is not one to be taken lightly. If the last five years in Asia has taught us anything, it is that self-storage will work in Asia, but do your homework first: it is not a “fit one – fit all” scenario, but rather a model that must be adapted to the local environment and carefully executed accordingly. Management of risk is critical, but, if done right, there is enormous potential and we look forward to being part of this development with adventurous, yet diligent, self-storage entrepreneurs.

 

For more information on opportunities for in the Asian self storage market please contact us NOW!