Self-storage deals at a standstill in wake of Ngau Tau Kok blaze

The acquisition or leasing of industrial buildings for use as mini-storage units has effectively been suspended, according to industry experts, amid growing government scrutiny of the sector, after a fire last month at a site in the Ngau Tau Kok area of Hong Kong killed two firefighters. Many now believe the industry will enter its first period of consolidation in a decade, as the authorities plan to introduce stricter fire-safety standards which could prove too expensive for poorly managed operators to implement, pushing many out of business. “Certainly we expect a wait and see approach as the fall-out from this drama continues,” said Darren Benson, executive director for advisory and transaction services, industrial and logistics at CBRE Asia. He said, however, the creation of a better regulatory framework is being viewed as positive for the sector, given the lack of governance in the past. “We expect operators will be anxious to work with the various regulatory bodies to ensure there is a clear path forward to support this vital and growing sector. Operators will be anxious to work with the various regulatory bodies to ensure there is a clear path forward to support this vital and growing sector Darren Benson, executive director for advisory and transaction services, industrial and logistics at CBRE Asia “It should also speed up much-needed industry consolidation, with smaller operators likely to be consumed by bigger players, which in turn might enable more to buy and operate from whole buildings rather than occupying portions of larger ones,” said Benson. Denis Ma, head of research at JLL said prior to the Ngau Tau Kok accident the sector had been attracting keen interest from investors, including real estate and private equity funds. He now expects any ongoing deals or negotiations on sites, however, to be halted, “until the government come up with clearer rules to regulate mini-storage outlets”. He said the funds had been examining different business models, including the forming of partnerships with industrial property owners or acquiring industrial spaces, to enter the market. The fatal fire — which the Fire Services Department said destroyed more than 200 mini-storage cubicles — broke put at an SC Storage site on June 21 and took 108 hours to extinguish. It triggered various government departments to look into amending legislation to improve fire safety for storage facilities. Kwok Yin-yan is a housewife who has rented a 60-square-foot mini-storage room from SC Storage in Tsuen Wan. She paid HK$8,000 up-front, for a one-year rental on her room, and the lease is due to expire this month (July) and she’s now worried she will have to relocate her belongings. “Fire is the biggest risk when renting such spaces. The storage rooms use electrical door locks, and I may be trapped inside if any fire broke out ,” she said. “I could take my stuff back home, but that could take several months to arrange. “After the sad accident, my husband and thought hard about how we could ill-afford to lose these possessions in a fire,” said Kwok, who has been using mini-storage warehouses for about 20 years. She said she has seen for herself how many facilities are operated poorly, without air-conditioning, ventilation or in some cases, suffering from water leakage. “But some of them charge very low fees,” she said. She adds the demand still remains high, however, as space continues to be in short supply in Hong Kong. “Some of my friends have even bought their own storage room instead of renting one,” she said. Luigi La Tona, executive director of the Self Storage Association Asia (SSAA), said the Hong Kong self-storage market is one of the most developed in Asia, with a net area of around 2.8 million square feet of available space. That compares with 2.5 million sq ft in Japan, and 1.4 million sq ft in Singapore. In per-capita terms, the storage area per person in Hong Kong is 0.65 sq ft, while in Japan it is 0.328 sq ft and 0.42 sq ft in Singapore. But it is 8 sq ft in US and 2 sq ft in Australia. “Investors won’t be scare off by the latest developments because they understand the potential growth of the industry,” La Tona said, adding he has been inundated with enquiries from members asking about what likely changes might be made to the regulations. He said the government, however, has admitted it has limited understanding of how the industry operates. “As an industry body, we would be keen to work with officials to help formulate regulations for the industry,” he said. SSAA members account for around three-quarters of the net floor area in 500 self storage facilities in Hong Kong. La Tona says market competition is intensifying, with a rising number of major overseas companies also looking at opportunities in the city. In March last year, real estate fund Blackstone bought local operator MiniCo Self-Storage for HK$420 million to enter the market for the first time, eight months after SingPost, a Singaporean self storage operator, paid S$12.12 million to acquire another firm, The Store House. Matthew Chee, the chief executive of another leading local player, RedBox Storage, said his firm has already been communicating with its customers on how to improve safety and security at its sites, to reassure them of compliance with current regulations in the wake of the Ngau Tau Kok blaze. “There has been an uptick in enquiries from new customers seeking facilities in the last week, which does indicate concern,” he said. He firmly believes that any implementation of new regulations should be done in consultation with the self-storage industry, and encourages storage users to offer their input too. “It’s hard to say at this stage whether new regulations will increase our own costs,” said Chee. “There will certainly be some smaller players for whom costs will likely increase considerably and therefore I do see consolidation in the industry.” This story has been amended to correct a reference to the real estate fund Blackstone, which bought MiniCo Self-Storage in March last year. An earlier version of the story misidentified the real estate fund.

Self-storage deals at a standstill in wake of Ngau Tau Kok blaze

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Market now braced for tighter regulations and first period of industry consolidation in a decade

Market now braced for tighter regulations and first period of industry consolidation in a decade