Self-storage market in Hong Kong suffering from demand-supply imbalance

Even as strong growth in markets continues.

It has been noted that despite an uncertain economic environment, demand drivers and robust business activity mean self-storage activity is growing.

According to a research note from CBRE, further, there was an estimated 3.4 million sq. ft. of self-storage demand in Hong Kong in 2015. In response to the demand, self-storage stock has increased greatly in Hong Kong (+20%) to 3.1 million sq. ft. of rentable space.

However, this implies a shortfall of 200,000 sq. ft. of stock in Hong Kong in 2015 despite the strong increase in supply.

Here’s more from CBRE:

Darren Benson, Executive Director, Industrial & Logistics, Brokerage Services, CBRE Asia, commented: “The self-storage market in Hong Kong remains fundamentally solid. The market is driven by favorable demographic and economic trends, such as smaller residential flats and low vacancy in the office sector, which is paired with low saturation in terms of self-storage per household relative to other markets globally.

In the next few quarters, we expect self-storage to expand continuously but likely at a slower rate, as the weak residential sales market and the uncertain macro conditions have dimmed its short-term outlook. The industrial revitalization scheme resulted in lower industrial stock, which may also create rental pressure for operators.

While most operators are becoming more cautious with their expansion plans, bigger operators are actively scanning for buying opportunities with an expectation that more sales stock will come to the market as sellers exit to lock in capital gains achieved over the past few years. In the long run, we generally see a steadily increasing demand for self-storage in Hong Kong.”

Dr. Henry Chin, Head of Research, Asia Pacific at CBRE, commented: “The fundamental demand drivers for self-storage and business activity are increasing, despite the uncertain economic environment. The manufacturing sector is under pressure, dampening demand for industrial factories—the underlying property for self-storage.

This represents a potential market entry and expansion opportunity for self-storage players. However, while we see significant opportunities for growth there are also areas of caution around this sector. There is a lack of awareness of self-storage in the region and the shorter lease terms and land tenure in Asia, compared to other regions, also present a challenge.

Moreover, there is a shortage of suitably located and priced properties but this is beginning to ease. As a result, we may see players consolidating in order to create scale in multiple markets.”