Self-Storage Market Growing Ten Percent Annually - Resilient to recession, with robust individual demand
Interview with Mr. Stephen Spohn, President of Quraz from an October 30, 2013 article in Nikkan Fudosan Keizai Tsushin (Daily Real Estate Economic News)
- Introduction
The self-storage market has been growing by about 10 percent annually over the past several years, and still has the potential to expand further. Supported by strong demand from individual customers, Quraz has been growing by more than 15 percent per annum.
- Current Status of the Self-Storage Market
Demand from individual customers is strong. Corporate customers are increasing due to our company’s strategy of taking on corporations with long leasing periods. In terms of natural growth, however, we are seeing an increase in demand from individual customers. The self-storage market has been growing by about 10 percent annually over the past several years, with still the potential to expand further. Quraz has been growing by more than 15 percent annually.
- What is behind such high growth?
I suppose the market has not yet been able to meet the demand. We have opened 10 new facilities in the past two years or so. We received a lot of customers in the first few months after opening, and then the flow stabilized. Presumably, the demand was there but the market was not responding to it. It works out that there is one self-storage facility every 500 meters in Tokyo, which is a considerable number. But perhaps residents are unaware of their nearby self-storage facilities because they are too small to be seen, or their service is not good enough. If you offer high-quality products or services, I suppose you see greater demand.
- Quraz’s Business Model
We do our business based on the ownership of self-storage facilities. It’s an American style business model in which we offer both self-storage space and services. Our self-storage facilities are owned by an SPC, which the owner of Quraz has a stake in. The buildings we target for our self-storage facilities are slightly older office buildings with a total floor area of about 1,500m2. We convert each building into a self-storage facility that offers 400-500 rooms, the average room size being 2 to 2.5m2. Since more than 90% of our customers are individuals, we look for such buildings in densely populated residential areas. Considering the number of office buildings in residential areas, they are not easy to acquire.
- Risk of Owning Self-Storage Facilities
Being a real estate investment fund, it is natural for the owner of Quraz to own such buildings. Although we have had a new owner since September, our business model has not changed. We adopt a rather conservative business style without applying much leverage. Even just after the collapse of Lehman Brothers, our occupancy rates continued to grow. While it is true that real estate values fluctuate, the self-storage business generates a steady cash flow. All over the world, the self-storage business seems resilient to recession. We ourselves have not seen a decrease in operating rate since our foundation in 2001.
- Demand as Real Estate Investment
Potential investors are showing interest in us. Financial institutions are beginning to understand our business, as evidenced by the recent financing from the Prudential Financial Group fund which has given us long-term funding under very favorable conditions. If financial institutions are interested, buyers will show an interest too. We think it is important, however, to appeal to consumers, and so we will strive to improve customer awareness of self-storage as we grow our company.
Stephen Spohn is the president of Quraz, Japan’s largest owner and operator of indoor self-storage facilities.
Spohn has been living and working in Tokyo for nearly five years.