Self-storage business growing as homes get smaller and pricier; rental rates set to rise

Jan 25, 2023

DEMAND for self-storage space in Singapore is on the up, as higher property prices lead people to downsize and small e-commerce businesses seek warehouse space.

But while the business is growing and storage rates have also risen, operators are finding themselves squeezed by the rising cost of industrial space and higher interest financing, paving the way for further increases in storage rental rates.

Operators have seen double-digit increases in storage space rented out over the last two years, keeping occupancy at their facilities high.

General Storage Group’s chief executive officer (CEO) Helen Ng, who is also chair of Self Storage Association Asia, said operators in Singapore are experiencing average occupancy rates of 80 per cent. General Storage Group operates Lock+Store facilities in Singapore and Malaysia, and The Store House in Hong Kong.

On average, self-storage space goes for about S$4 to S$4.50 per square foot (psf) per month for non-air-conditioned units, and S$5.20 to S$5.85 psf for air-conditioned units. Rates in the industry have increased 5 to 10 per cent over the last year “to cope with the rising costs”, said Ng.

Operators such as Extra Space Asia (ESA) also offer speciality services such as temperature-controlled wine lockers for up to 36 cases of wine at S$50 per locker per month.

Lock+Store, which has 14 facilities housed in industrial buildings and a total of more than 450,000 square feet (sq ft) of net lettable area, estimated its storage rentals were up 5 per cent in 2022 from the year before. It also saw a 16 per cent increase in enquiries for storage services in the last three months. Lock+Store’s facilities are a mix of owned and leased space.

ESA has 11 facilities holding more than 600,000 sq ft of space and estimated 15 per cent higher demand for storage space in 2022, compared to 2021. ESA leases five of its facilities and owns six – in Ang Mo Kio, Boon Keng, Eunos Link, Kallang Way, Hillview and Marymount – which were purchased in the last 16 years.

StorHub, which owns 2.1 million sq ft in gross floor area in 18 facilities, saw a more than 35 per cent increase in “customer move-in” over two years from 2020 to 2022. Enquiries for its storage services doubled in the last two years.

Luigi La Tona, group director of store operations at StorHub, said: “Most of our facilities are 93 per cent full. Apartments are becoming smaller and prices are going higher.”

StorHub’s storage size ranges from 8 sq ft to more than 2,000 sq ft.

People are beginning to understand the concept and convenience of self-storage, said ESA chief executive officer Kenneth Worsdale. About 70 per cent of ESA’s customers are using the facility to store personal belongings and 30 per cent are companies storing financial records and inventories, he said.

ESA’s self-storage units range from 6 sq ft to 500 sq ft, with an average rate of S$5 psf, and are over 95 per cent occupied.

“With housing costs increasing, a lot of people are downsizing, and those who don’t downsize, they don’t upsize either,” said Worsdale. “But Singapore has become quite a consumer society. People are becoming more affluent, buying more things, and would need more space to store the items.”

Post-Covid, the market also saw a step-up in demand for storage because people were renovating their homes, said Lock+Store’s Ng. She added that delays in Build-To-Order Housing and Development Board flats also led more young couples to store furniture, which had arrived ahead of their new homes, in storage facilities.

Lock+Store’s self-storage units range from 24 sq ft to 194 sq ft. Tenants can rent storage for two weeks to more than a year.

Ng also pointed to the brisk e-commerce sector as a demand driver.

“We do increasingly see customers who have their own online business come in to use self-storage units,” said Ng. “This is primarily because the facility allows 24/7 access, and some of them may have day jobs and would come to pack their products in the evening or during the weekend.”

StorHub’s La Tona cited the post-pandemic opening of borders and subsequent relocations. “Now that Covid is over, folks are moving to Singapore in droves,” he said.

“Businesses are relocating their headquarters to Singapore. All that’s doing is putting pressure on space demand. People are moving from all around the world, and would need space to store their belongings.”

But self-storage operators themselves have seen costs rising, especially for leased premises.

According to JTC’s third-quarter 2022 statistics, industrial rentals rose 2.1 per cent quarter on quarter, or 4.9 per cent on year in Q3 2022. This is faster than the 1.5 per cent quarterly rise recorded in Q2, when rents were 3.4 per cent higher year on year.

Norishikin Khalik, Knight Frank director of occupier strategy and solutions, said overall warehouse rents rose 6 per cent from Q3 2021 to Q3 2022, suggesting that self-storage operators would see some impact as rents make up a significant portion of costs for operators.

Lock+Store, which leases some of its premises, declined to comment on how much its rental costs went up. But the company said that cost pressures have “increased significantly for small and mid-sized enterprises” due to “soaring energy prices and the influx of private equity capital” that has driven up commercial property prices.

In response to rising operating costs, Lock+Store said they will be adjusting their rental rates.

ESA also faces higher financing costs on its purchases of buildings amid rising interest rates, said Worsdale.

While the rise in costs has not yet impacted ESA’s revenue or profits, Worsdale noted that it is likely to be affected by the higher costs in future as the operator expands.

Although Worsdale noted an increase in rental costs over the last five years, he said ESA had “signed long leases” on the spaces that it rents, and hence did not see big increases “since rent costs were set out years ago”.

ESA is likely to charge customers higher prices for storage units in the future amid the rising costs, said Worsdale. “In any business, if cost increases, we will need to pass some of that across to customers. So rental rates that we charge do go up, but we try to manage it to the bare minimum.”

For StorHub, which owns all its premises, interest rate increases are manageable so far, said La Tona. “As with all companies, we manage our costs, and we are profitable.”

Worsdale believes that Singapore’s self-storage market will continue to grow, albeit at a slower pace. “Singapore is very small, with 5.5 million people. If many people are already using self-storage, there will be fewer opportunities,” he said.

The ESA CEO also expects a consolidation in the industry, where some smaller operators may either leave the market or be bought out in the future. ESA was itself acquired in October 2022 by Dutch pension fund manager APG Investments Asia and CapitaLand Investment for an initial S$570 million in equity. The two companies are expected to invest up to S$1.14 billion to expand the business in the region.

“Bigger companies like ourselves have the financial strength to buy properties – but if you are a smaller operator and rent goes up by 20 per cent, you can’t pass that across to your customers,” said ESA’s Worsdale.

https://www.businesstimes.com.sg/pro...rates-set-rise