Why investors are flocking to self-storage

Demand for self-storage has soared since the onset of the pandemic, which unleashed a wave of both individuals and businesses needing spare space amid the spread of hybrid work.

This has, in turn, piqued the interest of real estate investors in the niche sector. Transactions in the sector across Asia Pacific reached US$800 million last year, up from US$200 million in 2019 before the pandemic, according to data from Real Capital Analytics.

“The capital pool is deepening rapidly as more institutional investors enter the fray,” says Pamela Ambler, Head of Investor Intelligence, Asia Pacific, JLL. “Global private equity funds are turning to Asia Pacific to acquire self-storage assets and scale quickly to replicate their earlier success in the U.S. and Europe.”

One notable deal was the joint acquisition of self-storage operator Extra Space Asia by Dutch pension fund manager APG and Singaporean real estate investment manager CapitaLand Investment last October for an initial S$570 million (US$433 million) to drive its regional expansion.

“The work-from-home trend and the unprecedented e-commerce boom led to individuals and businesses turning to self-storage in droves,” Ambler says.

New demand in Asia Pacific

Buoyed by the demand upswing, the sector saw occupancy levels in the Asia Pacific region rise 3.6% year-on-year to 80%, while rents were up 3% last year, according to data from JLL’s self-storage report.

E-commerce retailers are having a huge impact. Data from research firm eMarketer shows that the regional e-commerce market is on track to grow 11% over the next five years, outpacing Europe and North America by a large margin.

A threat to momentum

Despite the steady demand drivers, there are hurdles facing the sector. Self-storage operators surveyed by JLL highlighted the price of real estate and the lack of suitable locations as the top challenges impeding growth.

“Our role in exploring different methods of entry and working as a bridge between investors and operators will be critical in navigating the existing market conditions and spurring growth in the fledgling sector,” says Ambler.

As it stands, the underdevelopment of the region’s sector, relative to North America and Europe, points towards room for growth beyond the near term.

“We expect the sector to undergo an accelerated growth stage over the next decade driven by new institutional grade facilities,” says Ambler.

“Its stable and resilient occupancy and robust pricing power put it in good stead to catch up with the mature self-storage markets in other regions.”