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JLL: China key growth market for self-storage

Investors expect to generate returns of around 20 percent from self-storage deals in China, according to a report by the property services firm. 

Urbanization, public awareness and the growth of small businesses is driving an increasing demand for self-storage facilities across Asia Pacific, with China becoming one of the key growth markets, according to a report by JLL.

The Chinese self-storage market is at an early stage of development, but JLL estimates the market to grow by around 10 percent per year.

Currently, real estate developers and logistics companies are the major self-storage operators in Beijing and Shanghai. Earlier this year, one of China’s largest real estate developers China Vanke forayed into the sector and established V Self Storage, with each of its residential projects having space for self-storage.

There are also some examples of investment managers exploring this niche investment class. In May, InfraRed NF, the joint venture platform set up between InfraRed Capital Partners and the Nan Fung Group made a $28 million investment in China Mini Storage, its maiden self-storage deal in the country.

Apart from online retailers and small business owners, it is the individual demand for self-storage that has particularly surged in China in recent years, as rapid growth in home prices across Tier 1 cities continues to stretch the affordability of residential real estate, JLL notes.

From a return on investment standpoint, JLL says investors are aiming to generate an IRR of 20 percent over a five-year period from their self-storage deals. The estimated NOI yields, based on recent transactions in Beijing and Shanghai, are in the range of six percent to ten percent.

The report also singles out Taiwan as being a high growth market given the limited availability of self-storage facilities. There are around 43 self-storage facilities in Taipei while Hong Kong in comparison has close to 400. While there haven’t been any publicly announced self-storage sales transactions, JLL says the gross yields could be in the range of 2 percent to 3 percent, based on rental data.

“Investors are attracted to the stable rental growth of one to two percent per year and are likely to need about two to three years to reach the cash break-even point. Most investors have a target IRR of 10 to 20 percent or more over a five-year investment period,” the report added.