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29 Mar 2019

Real Estate Investment Firm Heitman Bets on Self Storage and Hong Kong

Chicago-based real estate investment firm Heitman is betting on the self storage market as an emerging theme in commercial properties in Asia.

Heitman, which oversees $41.7 billion in assets in the U.S., hopes to expand its investments in self storage concepts in Asia, adding to a portfolio of such holdings in Australia, Singapore, and Japan.

Mary Ludgin, senior managing director and director of global investment research at Heitman, said self storage makes sense in Hong Kong, given the small size of the average flat, and her company had identified opportunities.

“It’s predicated on the assumption that the individual may have an apartment that is small and may not have space to store their spare equipment or their furniture for another season,” Ludgin said.

She added that net operating income growth for U.S. self storage properties has exceeded that of all other commercial property types over the past 20 years on average.

“One of the things we like about it is it typically takes on income that is much higher than any other property type, and that income is more stable over time than any property types. There's a global quest for high-yielding assets, and that's part of the backdrop for self storage.”

-Mary Ludgin, senior managing director and director of global investment research, Heitman

Nearly three-quarters of Hong Kong’s private housing stock lack a dedicated storage space, according to Colliers International. Hong Kong's tiniest flats can go as small as 123 square feet, less than the size of a parking space.

In a recent article by Urban Land Magazine, it identifies Hong Kong is in a housing crisis, and is by far the least affordable city to purchase a home. That is, according to the 2018 Housing Affordability Survey compiled by the data analysis group Demographia, based in St. Louis, Missouri. Such was the situation in the firm’s 2017 survey, and going back eight years in a row.

It now requires 19.4 times the typical Hong Kong annual salary to purchase a Hong Kong home, which inevitably means a boxy, tight, nondescript space in a high-rise tower. This is good news for the self storage sector, assuming a developer can afford the cost of real estate.

With a population of more than 7.4 million, Hong Kong trails behind New York City's population of 8.6 million, and is the world's fourth most densely populated region.