By Tom Edwards & Danny Mohr in collaboration with Dr. Henry Chin
Attractive prospects for growth
Self storage is a relatively new class of commercial property in Asia Pacific that has been seeing steadily rising interest from investors lured by the sector’s strong fundamentals, relative stability, and attractive yields. 
Although both supply and competition have escalated across the region in recent years, self storage remains a niche asset. Aside from the likes of Australia, which has seen the development of advanced purpose built facilities and mounting activity from institutional investors, self storage in many Asia Pacific countries is still characterised by a small number of facilities run by minor domestic operators and has yet to evolve into a mainstream investment-grade asset class.
Nevertheless, with self storage proving resilient throughout the pandemic-led economic downturn and more operators and liquidity entering the market, CBRE believes the sector offers attractive prospects for growth.
While this will place new demands upon valuation professionals to perform appraisals in an emerging asset class with a limited number of historical transaction benchmarks, some service providers already possess considerable experience in this niche sector.
What’s driving end-user demand?
The drivers of end-user self storage demand vary across different markets but can broadly be categorised into what the industry refers to as the “four D’s”, which include the following:
Death: As of 2019, those aged 65+ accounted for 9.3% of Asia’s total population, a figure projected to increase to 12.4% by 2030 and 18.7% by 2050. In the Pacific, those aged 65+ represented 15.8% of the region’s total population in 2019, with this number forecasted to rise to 19.1% by 2030 and 20.4% by 2050.  With ageing populations naturally resulting in more deaths, relatives will make greater use of self storage after sorting and cataloguing the belongings of the deceased.
Divorce: Divorce is a life event that frequently spurs demand for self storage as one or both parties invariably move out from the marital home. Divorce rates in many Asia Pacific countries are rising, with China registering 4.7 million divorces in 2019, compared to 1.3 million in 2003.
Dislocation: Major life events such as enrolling in tertiary education, relocating to take up a new job and getting married usually involve change to people’s living arrangements and generate demand for self storage. After students leave home for university, their families will often convert their bedrooms for alternative use, resulting in the need to store their belongings.
Density: Many cities in Asia are characterised by tightly packed metropolises featuring very small residential spaces. The average living space per person in Hong Kong is 160 sq. ft., less than half that in Paris and New York. This is creating demand for self storage from an emerging and increasingly acquisitive middle class wanting to store personal goods such as seasonal apparel and valuables.
Other sources of end-user demand include a culture of consumerism, amplified by rapid e-commerce growth. This has led many people to possess more belongings than their homes can handle. Personal possessions commonly sent to self storage include bulky items such as seasonal apparel and equipment (e.g. winter clothes, ski gear, and surfboards), DIY and home improvement gear (e.g. household tools and machinery) and transport (e.g. boats, motorbikes, and bicycles)
In selected other markets, expansions and contractions by businesses are major source of end-user demand, with an increasing number of companies utilising self storage, particularly facilities with street-frontage, for a range of commercial operations and even as last-mile distribution points for parcels.
The economic fallout from the COVID-19 pandemic has also spurred new demand from business owners utilising self storage to reduce costs and increase flexibility. Requirements have also risen from white-collar employees needing to clear space at home to create home offices as a result of the introduction of remote-working.
The self storage investment landscape
Mature self storage markets in Asia Pacific are led by Australia, where self storage is increasingly seen as one of the most robust property classes for investment owing to its consistent degree of stability, true effective rent cashflow and effective yields of between 5.5-6.5% that comfortably eclipse those of other property classes. Investor demand has been robust through the pandemic, with National Storage REIT and Abacus purchasing 19 and 11 self storage facilities, respectively, in the 2020 financial year.
Australia and New Zealand are home to around 2,000 facilities in total, including an increasing number of purpose-built multilevel properties featuring designated bays for drop off and pick up as well as special features such as climate-controlled zones for storing goods such as wine. Many self storage properties in Australia are also land-rich, providing significant future redevelopment potential for higher density uses such as residential should self storage demand ever fade.
Other draws in this market include a fragmented operating environment that creates opportunities for major investors to acquire underperforming assets and then raise operational standards to boost value within a relatively short timeframe: a far simpler undertaking than doing the same with a shopping mall.
Elsewhere in the region, Japan has seen a near total lack of specialised self storage development despite rising end-user demand. Most self storage facilities mostly comprise individual floors in Grade B buildings in suburban areas. While there are a few large-scale operators, most facilities are run by domestic operators or owner-occupiers.
While the pandemic has stimulated some interest from residential developers looking to tap into end-user demand resulting from the increase in remote-working, most developers prefer to pursue development in other sectors due to self storage’s relatively small size.
Other key markets for self storage include Singapore and Hong Kong, where end-user demand is rising amid the aforementioned “four D’s” and more operators and developers are entering the sector. However, development in the latter has been somewhat constrained by regulatory issues related to fire and safety: a trend underlining the need for established and institutionalised self storage facilities and operators.
Self storage valuation
As with other special-use properties such as senior housing and service stations, valuations of self storage properties are typically conducted on a going-concern basis, meaning that appraisers evaluate factors such as quality of management along with more traditional criteria including location and building specifications.
The often-significant disparity in expertise among operators, who range from large professional groups to smaller independent providers, can result in a widely different performance among individual properties. This poses a challenge for valuation professionals seeking to perform accurate appraisals.
Other challenges include relatively small deal sizes and, in some markets, a lack of historical transactions in general that makes it difficult to establish benchmarks.
Self storage facilities in mature markets are rapidly becoming more attractive and accessible through the introduction of 24/7 operations, enhanced security, and bolt-on services such as mobile pick-up and drop-off.
As management expertise can be fairly value enhancing, some operators are now adopting sophisticated management software similar to that deployed in the aviation industry to optimise pricing and other systems. As the technology improves, more operators will be able to achieve operational competence.
Although self storage is less energy-intensive compared to other property types such as shopping malls and office buildings, some operators are seeking to reduce their environmental footprint by adopting renewable energy and/or installing smart energy systems to reduce energy usage.
These include Extra Space Asia, which has installed solar photovoltaic systems atop several of its storage facilities in Singapore, leading to a substantial reduction in its daily electricity consumption and annual carbon dioxide emissions.
All of these criteria and more may eventually come into play as demand for accurate and reliable valuations in this exciting new sector continues to grow.
 Pan-Asia Pacific yield data are not available but CBRE data from the UK show average implied net initial yields for self-storage facilities are 110bps above those for industrial and logistics assets. Source: https://www.cbre.co.uk/-/media/cbre/countryunitedkingdom/documents/self_storage_market_update_oct_edition.pdf
 Asia Self-Storage: Demographic Changes Drive Demand for Self-Storage Space in Asia. CBRE Research, June 2015
 Oxford Economics, CBRE Research, April 2021
For more insights into Australia's self storage industry, click here.