As an industry, and a concept, self-storage facilities are basically in their infancy. Back in the 1960’s, vendors in North America began to subdivide warehouse storage spaces into smaller self-service storage rental facilities. Eventually the trend would spread to European and Australian markets before finding its way to Hong Kong in the mid-1990’s. Today, the rental storage space industry generates close to US$35 billion annually in revenue.
According to Tim Alpe, CEO of RedBox Storage, one of the largest self-storage groups in Hong Kong, this is just the beginning. “No doubt the growth of the industry over the last fifty years has been impressive, but in some geographies we are still just scratching the surface,” he said. “There are so many opportunities still out there, particularly in a dynamic and dense market like Hong Kong where there never seems to be enough space for personal goods.”
While demand for self-storage remains robust in Hong Kong, storage space is not. There is an acute shortage of compliant facilities to handle the demand and trying to find space for anything in Hong Kong is always a daunting issue. Warehouses throughout the territory are now falling under the auspices of the government-backed revitalization schemes for industrial areas to be utilized for a ‘higher purpose and better use.’ These days, higher purpose and better use is usually code speak for desperately needed housing projects or burgeoning commercial districts.
Once a manufacturing hub back in the 70’s and 80’s, Hong Kong has successfully transitioned into a logistics and sourcing center. However, many of the remnants of the manufacturing era are still here, most notably industrial warehouses. Transforming those areas into residential zones is not quite that easy, as a series of government feasibility studies must be undertaken. Some of the industrial estates are eventually deemed not fit for housing, which often creates even greater opportunities in the self-storage field.
The numbers would also seem to support the ravenous demand for self-storage spaces. According to a recently published annual report by Colliers, a leading commercial real-estate brokerage and investment management company, the average living space in Hong Kong was a mere 161 square feet. That size space basically allows for a living room and bedroom. If each individual were to use up 5-20% of their living quarters as storage space, more than 2.3 million square feet of space would be required to fulfill half of Hong Kong’s 8 million population’s storage needs.
These are numbers that are impossible to ignore, particularly as young couples come into an overpriced property market. Born in the mid-80s, Lucas and Chloe have a combined monthly income just over HK$80,000 per month thanks to his job as an accountant and her small online business. They had to settle for a small starter flat which meant that the newlywed’s quality of life would be somewhat compromised. They had little choice but to store his limited-edition collectible toy models and her online store inventory in a mini storage unit. It’s a choice that thousands of young couples are making in Hong Kong, at least those couples who are lucky enough to find compliant storage space.
The CBRE Group, the global leader in commercial real estate services and investments, pointed out in their Marketview Q1 2021 that the local commercial real estate market has remained active while the demand for industrial real estate rental has increased significantly compared to the previous year. The vacancy rate of Class A Buildings and shops has increased by 0.4% and 2.1% respectively. In comparison, warehouse vacancy rates have dropped by 0.4%, and the demand for industrial units is expected to continue to grow.
Even more compelling is the fact that mini storage spaces are leased monthly, seasonally, bi-annually, and annually, giving the opportunity to pass on rental increments more frequently than standard tenancy agreements in other industries. The stable income from rent and high ROI makes this a stable rent-collecting asset. The relatively low cost of construction and low ongoing CAPEX/maintenance costs allows the investment to stabilize within 3-4 years with a strong cash flow. All of this points to the irrefutable fact that there has never been a better time invest in the mini storage industry.
Some of the more common questions being asked are:
1: Should I invest in an established mini storage company or start my own business?
If you’re not looking to invest significant funds, you might consider Real Estate Investment Trusts (REITs). The concept is much like investing in stocks, you will become a shareholder once you purchase stock in the REITs. The main income of REITs comes from rental and interest income. SFC regulations dictate that Hong Kong listed REIT’s are required to distribute over 90% of the profits as dividends to the shareholders, the same applies in the US. Those interested in investing in mini storage can pay attention to opportunities with rising stock prices and steady dividends. Those interested in starting their own business can refer to questions 2-5.
2: How much investment would I need to prepare?
If you’re interested in investing in mini storage, the next question you should be asking yourself is, “How much start-up funds do I need to open a mini storage facility?” Take a 20,000 sq ft unit in an industrial go down as an example. The rental, deposits, fit-out construction, intelligent security system, insurance and other expenses will cost north of 10 million HKD.
3: Where is a good location for a facility?
Like residential, rental costs are significantly higher on Hong Kong Island. Currently, the majority of mini storage facilities are located in Kowloon and New Territories. Some popular areas include Kwun Tong, Sha Tin, and Tsuen Wan, as these areas are all easily accessible. However, before you begin to consider the location, you should review your target customer and their proximity to gauge potential demand and any operational goals you set for yourself. Besides assessing the availability of units, potential rents, and your perceived customer base, you must not forget to check that the locations’ fire facilities comply with the fire services department and building department regulations.
Q4: How to determine your target customer?
If your target customer is those seeking personal storage for “everyday needs”, you might want to pick an area close to residential communities or commercial hubs. There is a large group of people with this need, however, the competition to attract and retain this segment is fierce. But it comes with the added benefit that they tend to look at storage long term as part of their lifestyle.
If you’re looking at customers with short term needs around renovation or relocation, there tends to be less of a need to access these items during storage. They can be located in peripheral areas with lower rents, which can be passed onto customers to deliver perceived value. The challenge with this type of rental is short-term in nature and will require consistent marketing and promotion tactics to maintain occupancy at your facility. If the client needs to store items such as wine, the facility will need to provide temperature and humidity control functions. If your target customer is a business, they typically sign longer rental contracts to store documentation, inventory, and supplies so they will also require temperature control while placing an emphasis on storage security.
Q5: How to do a risk assessment for starting a mini storage facility?
Factors that can lead to instability when starting a mini storage facility mainly come from the fixed rental cost, underestimating the length of time it will take to reach a stabilized occupancy, and regulatory compliance with your chosen premises and business model. According to the research department of Midland IC&I Limited, the sales of industrial buildings grew 3.3% in the first five months of 2021. To avoid issues occurring from short term contracts or sudden increases in rental costs, plausible solutions include purchasing the property or considering a joint venture operation with the real-estate owner.
About RedBox Mini Storage
RedBox Mini Storage, Hong Kong’s largest storage facilities.
RedBox’s storage solutions:
Self Storage | Self-managed storage units to suit every need;
Door-To-Door Storage | We pick up, store and deliver your items when it suits you;
Business Storage | We offer tailored and flexible solutions to maximize your business performance;
Packaging & Merchandise | Everything you need to protect your belongings.
RedBox Mini Storage makes de-cluttering your residence simple and stress-free. For however long you need space, we are here to help. Whether it’s extra furniture, sporting equipment, seasonal clothes or an extensive collection of rare antique books, RedBox Mini Storage has a personal storage solution custom-made for you. Just tell us about your clutter and we’ll advise you the rest of the way. Your valuables are always valued in our care.
For more information on RedBox, visit redboxstorage.com.hk
Oct 3, 2023
Looking to go camping? Here's a checklist of items and storage tips to consider before heading out!
Jul 28, 2023
Moving into a new house? Discover 10 home organization ideas and tips for creating a stress-free home that exudes minimalist aesthetics and modern charm.
Jun 27, 2023
Are you buying more books than you can read? Read on to explore 4 book storage ideas to refresh your home library, before getting more books at the book fair.
© 2024 RedBox Storage
All rights reserved.
Website by Roojai