Self-storage market to become ‘big trend’ in major Chinese cities, say real estate fund managers

Rapid urbanisation and the growth of online retailing in China’s big cities have begun to spur demand for a sophisticated form of mini self-storage geared towards the tech savvy user, according to private equity real estate fund InfraRed NF Investment Advisors.

While the self-storage concept is familiar to many Americans, it’s still relatively novel in China, although that’s beginning to change.

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“We see a big trend in people starting to use self-storage,” said Hans Kang, chief investment officer of InfraRed NF Investment Advisors, a fund originally founded by HSBC and Nan Fung Group in 2007.

The fund, based in Hong Kong, announced earlier in May a US$28 million investment in China Mini Storage (CMS), one of the largest mini self-storage operators on the mainland.

CMS will use the funds to expand their storage locations, upgrade IT systems and increase marketing.

First tier cities such as Beijing and Shanghai have self-storage usage rates equivalent to only 7 per cent of the level of Hong Kong, according to Kang.

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“As Beijing and Shanghai become much denser, apartments are getting more expensive. We see a big opportunity for us,” Kang said.

Currently, CMS has set up 12 self-storage facilities in core areas in Beijing and Shanghai. The company has also set up 20 lockers in Beijing, mainly in co-working spaces.

Kang said the fast-growing e-commerce market has created huge demand for mini storage, especially among young, online shop owners who need flexible solutions to manage inventory.

“A lot of people run their own shops on Taobao,” he said. “For example, say someone imported a lot of masks from South Korea, but they don’t have space to store their products, so they can rent our spaces.”

Kang added that they liked CMS’s model, which incorporates sophisticated IT infrastructure to enable online bookings and payment.

“Imaging you are in Beijing and you want to rent a space, you can open an app at a Wechat platform, they will show you the real time availability, and you click the time you want, agree a contract and pay online. Once you’ve done that, you can take the digital key to the site and open it, store, lock and go, no people will be on site. It’s all very efficient,” he said,

The tech-savvy model employed by CMS enjoys higher operating margins than traditional operators, and can be expanded quickly across tier-one cities.

InfraRed NF aims to create a portfolio of self-storage properties that generate stable, double-digit yields.

Eventually, the self-storage assets could be listed under a REIT structure on the stock market or sold to a long term investor, Kang said.

Stuart Jackson, chief executive officer of InfraRed NF, said the fund prefers locations in core urban areas such as basements which can be converted to mini storage in line with a strategy to add value to spaces which are poorly used.

Kang said the next step will see CMS expand to Shenzhen and Guangzhou.

By the end of 2018, we expect to have coverage in all four first-tier cities with 100,000 square metres in total, he said.

The firm has been focusing on value-added investing and mezzanine financing, and has launched two China real estate funds.