Self-Storage: The Operator Perspective

Transcription

1 Singapore Industrial MAY 2014 Self-Storage: The Operator Perspective DOREEN GOH Associate Director, Research & Advisory MICHELLE TEE Manager, Research & Advisory As the self-storage concept gains increasing acceptance among end users as an affordable and flexible Do-It-Yourself (DIY) storage option in Singapore, new players are entering the selfstorage business and more facilities are popping up across the island. However, the quest to enter or grow the self-storage business entails careful planning. From inception to sustaining and expanding the business, self-storage operators have to contend with decisions and issues like the business operating model, sourcing the right property, ensuring compliance with prevailing government regulations, differentiating from the competition and planning for the future. As such, the third issue of Colliers International s self-storage research paper series 1 aims to provide an understanding of the self-storage business from the perspective of the operators. Through interviews conducted with four major self-storage operators 2 in Singapore, this research paper aims to shed insight on various aspects of the self-storage business including the different types of business operating models, the real estate specifications or requirements of self-storage facilities, the challenges and issues faced during business set-up/ commencement, operation and growth, as well as whether there is an optimal self-storage facility. The future growth potential of Singapore s self-storage industry from the viewpoint of these self-storage operators and what this would mean for investors in self-storage space will also be discussed. Key Market Players There are no official statistics on the self-storage industry in Singapore. Based on market research undertaken by Colliers International, the local self-storage industry has grown rapidly over the past 10 years, burgeoning from a single facility in 2003 to an estimated 41 self-storage facilities, supplying over 25,000 self-storage units 3 and more than 1.8 million sq ft of leasable self-storage space islandwide, as of December the local self-storage industry has grown rapidly over the past 10 years, burgeoning from a single facility in 2003 to an estimated 41 self-storage facilities, supplying over 25,000 self-storage units and more than 1.8 million sq ft of leasable self-storage space islandwide, as of December This industry growth which saw the entry of new players and additional investments by existing players was driven by, among others, shrinking apartment sizes and the increasing

2 recognition of the self-storage concept as an affordable and flexible storage option among individuals and businesses. Notably, most of the new market entrants over the past two years were small-to-medium sized players, including D Storage, S-Store and Store4You, as well as StoreFriendly, which brought the self-storage franchising model to Singapore in December The consolidated survey findings based, on inputs gathered during the interviews of these four major selfstorage operators (with a total of 27 self-storage facilities as of September 2013) in September and October 2013, are presented in the following sections. Types of Business Operating Models According to Colliers International s survey of major selfstorage operators in Singapore as of September 2013, the majority 15 out of a total of 27 facilities (or 55%) are owned by their operators. Another seven facilities (26%) are operated under a franchise model and the remaining five facilities (19%) are leased by their operators. Source: StoreFriendly At the same time, existing self-storage players in Singapore such as Singapore Post ( SingPost ) and CapitaLand Limited ( CapitaLand ), upped their investments in the self-storage industry in 2013 through the acquisition of other operators a move that signalled their confidence in the industry over the medium to long term. Specifically, SingPost bought the entire General Storage Company Pte Ltd the operator of the Lock+Store brand in January 2013, and subsequently subsumed its existing S3 self-storage facility in the Ayer Rajah area under the Lock+Store branding. as of September 2013, the majority 15 out of a total of 27 facilities are owned by their operators. Another seven facilities are operated under a franchise model and the remaining five facilities are leased by their operators. Types of Business Operating Models Adopted by Major Self-Storage Operators in Singapore (as of September 2013) This was followed by CapitaLand s announcement in April 2013 of its acquisition of an additional 38% stake in both StorHub Holding Pte Ltd ( SHPL ) and StorHub Management Pte Ltd ( SMPL ), raising its initial 62% share in both subsidiaries to 100%. In the same year, CapitaLand completed the acquisition of 100% of the issued share capital of BSG Holdings Pte Ltd ( BSGH ) from Invista Real Estate International Holdings ( Cayman ) Limited ( Invista ) and the business of managing and operating self-storage facilities carried on by Big Orange Self Storage Singapore Pte Ltd in Singapore on 1 July Following these developments, Singapore s self-storage industry is now anchored by four leading self-storage operators comprising Extra Space, Lock+Store, StorHub and StoreFriendly. Together, they account for 27 of the total estimated 34 self-storage facilities islandwide as of September 2013, and supplied around 91% of both the total estimated islandwide number of self-storage units and available leasable space. Updated as of December 2013, these four major operators accounted for 32 of the 41 self-storage facilities and an estimated 88% of both the total estimated islandwide selfstorage units and available leasable space in Singapore. Source: Colliers International Research Own and Operate The preference to own their facilities, despite the high initial real estate and business investment outlay, is due to the greater certainty, control and flexibility that self-storage operators enjoy vis-à-vis the lease and franchise models, as well as the potential for future capital gains on their self-storage facilities. But due to the long lead time required to develop a new selfstorage facility on a greenfield site, most operators prefer to 2 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

3 purchase and convert existing industrial facilities which is a comparatively more cost effective and quicker option. According to Steel Storage 4, the average fit-out period is only about 16 weeks, assuming that the building is in a reasonable state of repair. In contrast, the construction period for a brand new facility will typically take about two to three years, and this is on top of the time needed to source a suitable land site and obtain the necessary approvals from the relevant authorities, among others. Moreover, the cost to fit-out or convert an existing industrial building into a self-storage facility is much lower than the cost of constructing and fitting out a brand new facility. According to Steel Storage, it will cost an average of about S$32 per sq ft to fit out a 20,000-sq ft self-storage facility. In comparison, the construction cost alone can range in the region of S$100 to S$130 per sq ft for a brand new single-storey facility, and S$120 to S$150 per sq ft for a multi-storey building. It is thus, unsurprising, that only two out of the 15 facilities owned by the major self-storage operators were new buildto-suit facilities. The remaining 13 facilities were all converted from existing industrial buildings. Lease and Operate market exposure. At the same time, it supports the franchise brand through extensive marketing campaigns. Through its franchising model, StoreFriendly was able to grow its business quickly to one leased and seven franchised facilities as of September However, there is no one-size-fit-all model. The best or right business operating model for any self-storage investor or operator will hinge on a myriad of factors including the ability to secure financing, the risk appetite, the investment holding period, exit strategy and the availability of suitable facilities/ sites for sale or lease. Is There An Optimal Self- Storage Facility? Likewise, whether or not there is an optimal facility for any operator would depend on the availability of a facility that meets most (if not all) of its operating requirements in terms of location, facility size, unit mix and building specifications. While most prefer to own their facilities, the lease option is not without its merits. Although operators have less control over the real estate cost and there is no guarantee of the continued availability of the business premises, the lease model provides self-storage operators with the opportunity to set up a facility in a sought-after location where there is a lack of suitable industrial properties for sale. This lack of suitable industrial properties for sale is compounded by Singapore s scarce land resources as well as the common practice of treating industrial properties as investment properties in Singapore. According to Colliers International s estimates as of the end of September 2013, about 40% of the islandwide industrial stock was held by either the public sector or private investors (e.g. developers, institutional funds like Real Estate Investment Trusts and other non-institutional investors) for rental income. Furthermore, leasing the premises will not only lower the initial capital outlay, but also allows prospective investors a quicker foray into the self-storage business compared to the ownership/ asset purchase strategy, since it takes longer to buy and convert an existing building or construct a brand new facility. The Franchise Option As for the self-storage franchising model which was introduced to Singapore by StoreFriendly in December 2011, it has opened up opportunities for smaller-scale investors to enter the selfstorage business. StoreFriendly s strategy is to partner with its franchisees and set up smaller-scale facilities in many locations for greater Source: Lock+Store Location and Size of Facility From the interviews conducted with the four major self-storage operators in Singapore, the facility should be situated in a location that is visible and easily accessible by the target group of customers/end users so that they can have easy, 24/7 access to their stored items. While the size of the overall self-storage facility is, more often than not, determined by the availability of the existing buildings for purchase or lease, the operator s investment strategy also plays a part. From the interviews, operators geared towards larger facilities mentioned economies of scale and flexibility in terms of pricing, configuration and marketing as the key determinants of facility size. On the other hand, those who preferred smaller-scale set-ups cited cost considerations and the ability to fill up the facility quickly to generate cash flows and a return on their investment as the main reasons for smaller set-ups. As such, it is unsurprising that the interviewees cited a wide range of 10,000 sq ft to 120,000 sq ft when asked for an opinion on their optimal facility size. 3 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

4 Unit Mix and Size of Storage Units Similarly, the self-storage operator s business strategy would affect the unit mix configuration of its facility. For instance, self-storage operators targeting clientele who need or prefer a climate-controlled environment, such as for wine storage, would set aside more air-conditioned units in its facility. In addition, the location of the self-storage facility and the demographic profile of the immediate targeted population catchment would determine the facility s unit mix configuration and size of the self-storage units. For example, a self-storage facility in a predominantly residential location is likely to have a higher proportion of lockers and smaller units as these tend to be in greater demand by this use group. In light of the above, there are wide variances in what could be the optimal unit mix configurations among the operators. Unit sizes, too, vary widely, ranging from a 16 sq ft locker to a 300 sq ft jumbo unit, although the general consensus appears to be for a higher concentration of small- to medium-sized storage units as these are more affordable and popular among end users. Moreover, it is easier to amalgamate two or more small units to form a larger storage unit, compared to subdividing a large storage unit into multiple smaller units. This variance in what could be the optimal facility unit mix and unit size also stems from the fact that self-storage operators would vary the optimal unit mix and size of their facilities in accordance to the changing needs of the end users or their business strategy. The right unit size is one the customer needs; not one they think they need... They can almost always make do with a smaller space. It is for storing, not for living. Jes Johansen, Managing Director of StoreFriendly Building Specifications On the building s technical specifications, all the operators interviewed agreed that self-storage facilities do not need very high technical building specifications in terms of the electrical loading, ceiling height and floor loading capacity. The general feedback is that the building specifications of existing industrial premises in the market are sufficient for their requirements. There is also no ideal floor plate size, as this is dependent on the size of the facility although premises with fewer columns will provide design flexibility and efficiency. Source: StorHub From an operating perspective, what is more important is ensuring that the building is secure (e.g. 24-hour computerised security access and CCTV camera) and that the premises are well-lit and ventilated with provision of cargo and passenger lifts, a loading/unloading area, humidity control (especially for temperature-controlled units) and a fire protection system that complies with the Singapore Civil Defence Force s ( SCDF ) Fire Safety Regulations, for the safety and comfort of the end users/customers. Self-storage operators who design their facilities with the end-user experience in mind will not only be able to stand out from the competition, but also cut down on operating costs. For example, some building design elements, like locating the loading/unloading area near the lifts and making use of natural ventilation and lighting will help to enhance the overall customer experience and at the same time, help the operator trim operating costs (e.g. electricity expenses). A summary of the key physical attributes that would contribute towards the set-up of a self-storage facility based on the interviews conducted with Singapore s four major self-storage operators is provided in the following table. 4 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

5 Key Physical Attributes of a Self-Storage Facility LOCATION AND FACILITY ATTRIBUTES LOCATION Visible and easily accessible All of the operators surveyed believe that the size and mix of a self-storage facility and their storage units is FACILITY SIZE AND UNIT MIX CONFIGURATION / SIZE determined by the location of the facility and the targeted catchment profile. The unit mix and size also vary over time, according to the changing needs of the end users or the operator s business strategy. TYPICAL BUILDING SPECIFICATIONS FOR A SELF-STORAGE FACILITY CEILING HEIGHT FLOOR LOADING SIZE OF FLOOR PLATES 4-6 m 3.5 to 5 kn/sq m 10,000-25,000 sq ft Note: The area should have wide column spans of about 7 m x 9 m. Cargo and passenger lifts Mechanical ventilation Fire protection systems (e.g. fire alarm & sprinkler system) OTHER REQUIREMENTS 24-hour computerised security access (e.g. biometric, card or pin access) CCTV cameras Loading and unloading area (preferably near lifts) Uninterrupted cooling system for wine storage Humidity control (especially for temperature-controlled units) Source: Colliers International Research Key Challenges Apart from the business operating model and the best-fit facility, self-storage operators also need to address a number of key challenges or concerns in the start-up, operation and expansion of a self-storage business in Singapore. These considerations are summarised in the following table. Source: StoreFriendly Key Challenges Faced by Self-Storage Operators WHEN STARTING A SELF-STORAGE BUSINESS IN SINGAPORE OPERATOR* AVAILABILITY OF SPACE SUITABILITY OF SPACE HIGH START-UP COSTS MARKETING OF FACILITY COMPLIANCE WITH GOVERNMENT REGULATIONS LABOUR A B C D OTHERS 5 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

6 Key Challenges Faced by Self-Storage Operators WHEN OPERATING A SELF-STORAGE BUSINESS IN SINGAPORE OPERATOR* SUSTAINABILITY OF BUSINESS MANAGEMENT OF FACILITY HIGH OPERATING COSTS MARKETING OF FACILITY COMPLIANCE WITH GOVERNMENT REGULATIONS LABOUR A B C D OTHERS WHEN EXPANDING A SELF-STORAGE BUSINESS IN SINGAPORE OPERATOR* AVAILABILITY OF SPACE SUITABILITY OF SPACE COST OF SPACE MARKETING OF FACILITY COMPLIANCE WITH GOVERNMENT REGULATIONS LABOUR TO DIFFERENTIATE FROM COMPETITORS A N.A N.A N.A N.A N.A N.A N.A B C D N/A denotes not available * Names were not revealed due to confidentiality reasons Source: Colliers International Research Generally, all four major self-storage operators interviewed agreed that the main challenges faced when starting their selfstorage business (in no particular order) are the availability of space, the suitability of the space, the high start-up cost, marketing the facility and the need to ensure compliance with prevailing government regulations. all four major self-storage operators interviewed agreed that the main challenges faced when starting their self-storage business are the availability of space, the suitability of the space, the high startup cost, marketing the facility and the need to ensure compliance with prevailing government regulations. These key constraints arose from the fact that the right-size facility (whether for lease or for sale) that also caters to the operator s targeted locality and end users, risk appetite, financing considerations and operating business strategy does not come by easily, and some form of compromise would be required. At the same time, new entrants looking to set up a self-storage business in Singapore may not be familiar with the regulatory framework for self-storage facilities, including the relevant government regulations and the corresponding government agencies administrating them. However, this can be overcome through seeking professional advice and taking time to communicate with the relevant authorities to understand the applicable regulations. As such, the views of the operators interviewed varied widely depending on their own experiences when they were asked to rank the challenges from the most pressing to the least consequential. For example, two of the operators highlighted that the availability of space was the most pressing issue faced. However, the availability of space was deemed the third most pressing issue by the other two operators, who instead ranked the need to ensure compliance with government regulations as the most pressing issue. In fact, the need to meet the SCDF s stringent fire safety regulations was highlighted as a challenge by a couple of interviewees. Yet, compliance with government regulations is not considered a challenge at all for one of the operators who is familiar with the regulatory framework and hence, viewed it as just a standard regulatory procedure. Most of the operators also do not deem the marketing of their facility as a very pressing challenge during the business set-up stage. However, this was the biggest challenge faced by self-storage operators during the business operation stage, particularly in terms of creating brand awareness (e.g. through advertisements) and differentiating from the competition through the offering of value-added services, since there is no real differentiating factor in the physical self-storage unit. 6 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

7 Another key challenge highlighted for the business operation stage was the high operating cost in Singapore including the rental of the premises (for those who leased their space) and labour cost. And for those looking to grow their self-storage business, the top three challenges (in no particular order) appears to be the availability of space, the suitability of the space and the cost of the space in Singapore. Although most of the operators interviewed are still keen to expand their footprint in Singapore over the next five years, these three main concerns appeared to be part of the driving force behind the operators considering business growth overseas as well. Outlook and Trends in Singapore s Self- Storage Industry The optimism that the major self-storage operators interviewed had for the future prospects of Singapore s self-storage industry stems from the expected rise in demand for external storage space solutions from both individuals and businesses over the next five years. Source: Extra Space This, in turn, is based on the expectation that Singapore s population will continue to grow and become more affluent over this period. The rise in disposable income will allow more individuals to afford personal purchases like clothes, shoes, household items and collectables. But with home sizes expected to remain small, individuals would need to turn to external storage space providers to meet their storage needs. Meanwhile, the trend towards online retailing is expected to proliferate and lead to the set-up of more online retail businesses that would require storage space for their goods. Smaller traditional brick-and-mortar businesses looking to contain their operating costs are also expected to turn to self-storage space as a flexible and cost-effective storage and warehousing solution. Three key trends will drive the growth of the self-storage industry in Singapore: rising affluence and consumerism, shrinking apartment sizes, and increased entrepreneurship. There will be increased demand from both personal and corporate storers. As storers expectations become more sophisticated, we will have to deliver more innovative service offerings... Helen Ng, CEO of Lock+Store Growing Number of Small Players In light of the positive demand prospects, all of the major self-storage operators surveyed anticipated the entry of new industry players over the next few years, especially smaller setups or single-facility operators (e.g. those who convert a floor in an industrial building into self-storage space). According to one interviewee, this is likely to arise from the recent clampdown on unauthorised usage of industrial space. As the leasing process has been prolonged due to the need to conduct more stringent checks to ensure prospective tenants qualify for the industrial space, some investors may convert their industrial premises into self-storage space to ride on the self-storage industry s growth prospects with a view of getting a quicker return on their investment. 7 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

8 New Entrants or Brands from Overseas Apart from more local set-ups, established self-storage brands from abroad may also invest in Singapore, to ride on the industry s growth prospects. As such, Singapore s self-storage industry is expected to become more diverse and competitive in the coming years with a wider range of product and service offerings. For example, there could be more specialised storage spaces for antiques and artwork, among others, with special climate and security control to cater to the growing number of collectors in Singapore. Summary of the Trends in the Singapore Self- Storage Industry However, this could lead to some downward pressure on the rents of the self-storage units in the short run as some of these new industry entrants may drop rental rates to fill up space. End users may also be confused over the different types of offerings from different operators. Notwithstanding this, some of the major operators interviewed were unfazed by the anticipated rise in competition, as this could help to raise the overall profile of operators, the awareness of the brands and standard of Singapore s selfstorage industry. New entrants to the industry may also try to differentiate themselves from the competition by improving the image of their self-storage facility and business. Industry Consolidation As the industry matures, however, it could undergo a consolidation phase. Smaller players could be acquired by larger companies looking to increase their market share in Singapore. And lower grade facilities could be shut down. Some operators may also fold up due to the lack of knowledge on how to run a successful self-storage business. More Self-Storage Management Companies In fact, a number of interviewees foresaw the emergence of more self-storage management companies over the next five years, to help inexperienced or passive investors to manage their self-storage business. These management companies could either be a new independent set-up or a service branch of some of the major existing self-storage operators keen to tap this business opportunity. Growing Number of Small Players New Entrants / Brands from Overseas Industry Consolidation More Self-Storage Management Companies Convert a cluster of adjoining strata-titled units or single floors to self-storage use to maximise returns on investments in industrial properties Established overseas selfstorage brands may be looking to set up new outfits in Singapore Bigger players acquire the smaller ones - Larger players buying out smaller and weaker players; some of these weaker players may exit the market totally Management companies with the technical know-how are expected to sprout up to help inexperienced or passive investors manage their selfstorage facilities 8 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

9 Impact of New Trends on THE OPERATOR THE CUSTOMER THE COMPETITORS OVERALL INDUSTRY For existing operators, the increased competition from the smaller players may put pressure on rents in the short term as they may cut rates to fill their space. With more operators in the market, customers will have increased choices and will be able to take advantage of the price/rent competition among operators. In the long term, healthy competition may lead to the development of more innovative products and higher valueadded services as operators try to differentiate from one another. More activities within the self-storage industry could create more awareness and increase penetration rate as people start to accept that self-storage is becoming a part and parcel of life rather than a luxury. However, in the long term, the growing number of small players may mean more business opportunities for existing operators as some major operators can branch into providing managing agent services to inexperienced or passive investors. However, more choices could create more confusion for the users who will need time to decipher the different standards offered by different facilities. The market will undergo a period of consolidation in which the weaker players will be bought out by the bigger players or close down eventually, depending on their holding power. Due to the high cost and competition in the local market, operators may also need to look overseas for new business opportunities. Source: Colliers International Research In terms of the business operating model and facility, the major operators generally do not expect any major differences from their existing set-ups over the next five years. All of the operators surveyed would still prefer to own their facilities for better control of their real estate cost and also for potential future capital gains on the properties. However, they recognised that this is not always possible, particularly for smaller operators, due to the high capital outlay and limited availability of suitable sites/properties for acquisition. As individuals seeking personal storage solutions are expected to remain the dominant source of demand, most of the selfstorage operators interviewed expected the continued offering of a higher proportion of small- and medium-sized storage units. However, one interviewee observed that the overall facility size may decline as investors/operators learn to operate out of smaller premises possibly driven by the high real estate cost. Additionally, the average unit size may decrease in line with the demand for smaller storage units which are also more affordable. The major operators also expected the minimum term of lease for their storage units to stay unchanged at the current range of two weeks to a month. However, most of the survey participants agreed that selfstorage operators would need to provide more innovative and discerning value-added services to stand out from the competition. The suite of services offered would depend on the location of the facility and its target clientele. Apart from the services already offered by the industry as summarised in the following table, some new services suggested by the self-storage operators include the provision of on-demand or door-to-door collection and delivery services, although this may lead to accountability and liability issues on the storage items which is against the traditional DIY selfstorage concept where the clients are accountable for their own stored items. Source: Lock+Store 9 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

10 by Self-Storage Operators Free use of trolleys Packing supplies for purchase Forklifts for rent Moving services for hire (from third-party service providers) Insurance coverage (from third-party service providers) Wide range and innovative payment modes (e.g. AXS, SAM, PayPal, Vbox) Availability of independent mailboxes for users Other services (e.g. sale of stamps, smart Pack, speed post packages, etc.) Source: Colliers International Research Some may introduce services that are provided by self-storage operators overseas, such as the provision of free truck rental for customers or focus on the provision of specialised storage units for wine, art and even possibly 24/7 safe deposit boxes. Location-wise, those seeking expansion opportunities in Singapore preferred to open new facilities outside the central area of Singapore where there is already a high concentration of self-storage facilities. One interviewee shared that the company hopes to open new facilities in the northern and western parts of Singapore, while another interviewee mentioned that the future location of its facilities will depend on the location of the upcoming housing estates/areas which could include the upcoming housing districts of Kampong Bugis and Bidadari estates as announced in the draft Master Plan In addition, most of the operators surveyed with the exception of StoreFriendly, which already have a strong presence in Hong Kong before venturing into Singapore are also keen to expand overseas. These include regional countries, like Malaysia (e.g. Kuala Lumpur), China (e.g. Shanghai) and South Korea. Conclusion Singapore s self-storage industry is expected to become more exciting in the coming years. There will be opportunities for new investors or players to enter the market and for existing players to grow their footprints. This will add more facilities in new locations, lead to more innovative product and service offerings, and ensure that the rents of the self-storage units are kept competitive all for the benefit of the end user. Singapore s self-storage industry is expected to become more exciting in the coming years However, before jumping on the bandwagon, prospective investors or players should take note of the typical challenges faced by self-storage operators at different stages of their business operating cycle. To minimise their investment risks, due consideration should be accorded to important issues like the availability of suitable real estate, Singapore s regulatory framework with regards to self-storage premises, their risk appetite and investment holding period, the availability of financing and the target customer profile. Understanding these issues would also help prospective investors or operators to determine the best fit business operating model and strategy as well as the optimal design for the self-storage facility for each location, in terms of facility mix and unit sizes. At the same time, the growth of the self-storage industry would also present opportunities for both new entrants and existing operators to branch out into new business avenues such as the provision of management services to investors without the expertise or are uninterested in managing a self-storage business. However, like any industry growth cycle, Singapore s selfstorage market is also expected to eventually undergo a consolidation phase that would weed out the weaker and smaller players and/or lead to the shutting down of lower grade facilities. This would provide opportunities for some of the larger operators to expand their portfolio through the acquisition of some of these smaller players, and give end users some peace of mind over the quality and reliability of using self-storage. And by then, renting a self-storage space will have become the norm, rather than the exception. Source: Colliers International Research Colliers International would like to thank Extra Space, Lock+Store, StorHub, StoreFriendly, and Steel Storage for sharing their insights on the self-storage industry in Singapore. 10 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

11 Regulatory Framework for Self-Storage Facilities Self-storage facilities in Singapore can be located in Business 1 6 or Business 2 7 zones. These facilities can be set up in standalone facilities or multitenanted industrial buildings (either strata-titled or non-strata-titled). They can also be build-to-suit facilities or converted from existing premises, with the latter being more common. Depending on the scale of the alteration work, the operator may be required to submit plans to the authorities for approval to convert the property to selfstorage space. If the facility is sitting on land within JTC s/hdb s purview, the operator needs to get clearance from JTC/HDB and have their plans endorsed by JTC/HDB and other relevant authorities before submitting to URA for approval. If there is no increase in intensity (i.e. GFA) of the property, neither a development charge 8 nor differential premium 9 is payable. Before a self-storage facility can commence operations, the operator needs to ensure compliance with the regulations stipulated by the following authorities: Urban Redevelopment Authority s ( URA ) land-use zoning and development control requirements; JTC Corporation ( JTC )/Housing and Development Board ( HDB ) usage guidelines (for JTC/HDB premises); Building Control Authority ( BCA ); National Environment Agency s ( NEA ) Code of Practice on Pollution Control; Singapore Civil Defence Force s ( SCDF ) Fire Safety Regulations; Land Transport Authority s ( LTA ) Traffic Management Matters. However, as most self-storage facilities are converted from existing industrial premises, potential investors/operators should also take note of the following two planning guidelines: 1. Change of Use If the property is currently used as a warehouse, a change of use application is not required. However, if the property is currently used as a factory, the operator needs to apply to the URA for a change of use. 1 Colliers International in collaboration with Lock+Store has published two earlier research papers titled Self-Storage: A Space Solution in September 2011 and Self- Storage: The Potential from the Non-Users in November Colliers International conducted interviews with the operators of Extra Space, Lock+Store, StorHub and StoreFriendly in September and October Note that the number of units may change as operators typically vary their unit mix according to changes in demand. 4 Steel Storage is a market leading provider of consultancy services and products to self-storage operators and investors worldwide. 5 The Master Plan is the statutory land use plan which guides Singapore s development in the medium term over the next 10 to 15 years. It is reviewed every five years. The latest review was conducted in Business 1 ( B1 ) are areas used or intended to be used for industry, warehouse, utilities and telecommunications uses for which the relevant authority (e.g. NEA) does not impose a nuisance buffer greater than 50 m. 7 Business 2 ( B2 ) are areas used or intended to be used for industry, warehouse, utilities and telecommunications uses, whereby the business uses will impose a nuisance buffer more than 50 m and within health and safety buffers. Special industries such as manufacture of industrial machinery, shipbuilding and repairing, may be allowed in selected areas subject to evaluation by the competent authority. 8 Development charge ( DC ) is a tax that is levied when planning permission is granted to carry out development projects that increase the value of the land (e.g. rezoning to a higher value use and/or increasing the plot ratio). 9 Differential premium ( DP ) is a charge for lifting the title restriction. The DP is the difference in value between the use and/or intensity stated in the State title and the approved use and/or intensity in the provisional planning permission. Do note that if the facility is sitting on land within JTC s/hdb s purview, the operator also needs to inform JTC/HDB of any change of use. 2. Change in Use Quantum The operator needs to ensure that the proposed self-storage facility continues to comply with the URA s 60:40 industrial space usage requirement, as well as the usage guidelines when the premises is converted to a self-storage facility. This means that the storage space has to make up for at least 60% of the total gross floor area ( GFA ) while a maximum 40% of the GFA can be allocated to ancillary/secondary use (e.g. corridor space for circulation, sales & admin offices, etc.). Lockers and/or storage units can be stacked on top of one another without prior approval. However, the addition of mezzanine floors in the facility is subject to URA s approval and is dependent on whether the allowable building intensity has been met. 11 Self-Storage: The Operator Perspective May 2014 Industrial Colliers International

12 485 offices in 63 countries on 6 continents United States: 146 Canada: 44 Latin America: 25 Asia: 38 ANZ: 148 EMEA: 84 Contact: Chia Siew Chuin Director [email protected] Colliers International Singapore 1 Raffles Place #45-00 One Raffles Place Singapore TEL FAX RCB No E US$2.1 billion in annual revenue 1.46 billion square feet under management 15,800 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with over 15,800 professionals operating out of more than 485 offices in 63 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world. colliers.com Copyright 2014 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.