HONG KONG (BLOOMBERG) - People often complain about Hong Kong's notoriously tiny apartments, but for investors such as Blackstone Group, opportunity can be found in small places.
Welcome to the world of self storage.
The majority of Hong Kong's 7.4 million residents live in cramped homes with limited space for clothes, shoes, books, sports gear and other items. So there is a desire to find somewhere else to store non-essential belongings.
"People don't want to give up their stuff, things that they have an emotional attachment to," said Mr Ralph Myers, a 38-year-old who started using a storage unit for his furniture six months ago.
The theatre set and costume designer pays HK$250 (S$44) a month for the space.
"Apartments in Hong Kong are so small there's not that much difference between my storage unit and my place," Mr Myers said. "Essentially my storage unit looks like a furnished apartment itself - bed, chairs, table and so on - just without a kitchen or a bathroom."
Mr Chris Heady, chairman of Asia-Pacific and head of Asia real estate at Blackstone, described the sector as "interesting" at a panel discussion at the Wharton Global Forum in Hong Kong last month (June).
"It's not a glamorous business necessarily, but a good business," he said.
Blackstone invested a reported HK$420 million in MiniCo Self-Storage in March 2015. The company is now called Minibox Self Storage.
Self-storage supply in Hong Kong in 2015 was 0.44 sq ft per person - way behind the US figure of 7.8 sq ft, according to a report by CBRE Group. At the end of that year, there was a shortfall of about 200,000 sq ft of self-storage space in Hong Kong.
Mr Simon Tyrrell, managing director of E3 Capital Partners in Hong Kong, said the city is "the least developed" core Asian market when it comes to self storage. E3 Capital acquired an operator called Big Orange Self-Storage as part of a takeover. Although it has sold that, it plans to start a premium service through its business RedBox Storage, Mr Tyrrell said.
"If you look to Western markets, Asia is massively under-serviced and with the rise of the middle class, logic tells you that demographically the industry has to be set for a massive increase," he said.
In Tsing Yi in Hong Kong's New Territories, a 20 sq ft storage unit - large enough for a two-seater sofa, painting, small dresser, mattress and 24-inch TV - costs from HK$400 for a one-month contract.
A 100 sq ft unit - big enough to take the above items plus a filing cabinet, five document boxes, a lamp, a computer, a golf bag, a chair, two bags of clothes and a dining table - costs from HK$2,750 a month.
Jones Lang LaSalle said in a report last month that the sector is attractive to Hong Kong investors because of its strong regular income growth and the fact that high occupancy levels are underpinned by a stable tenant base.
Millennials and the younger generation are typically more open to self storage, according to Mr Bob Tan, JLL's national director for alternatives, Asia-Pacific.
"If you go one or two generations back, people liked to have their stuff in their own houses," he said.
Around three-quarters of self-storage customers are individuals. Factors driving demand include marriage - couples combining two households into one - and divorce, where one person moves out and needs somewhere to store his or her possessions.
The rising death rate is another driver, as people inherit furniture and heirlooms that would not fit in their own homes.
"As people pass on, their belongings must be sorted and catalogued by their relatives," the CBRE report said. "Self storage is the solution when this event occurs."
The widening gap between property prices and wages has also forced some homeowners to downsize, reducing space for their belongings.
The tininess of Hong Kong homes is well documented. CBRE said the average household space per person is just 167 sq ft. That compares with 247 sq ft in Singapore, 402 sq ft. in the United Kingdom, 853 sq ft in Australia and a cavernous 980 sq ft in the United States.
Colliers has estimated that 852,000 private residential units - 76 per cent of the total - lack dedicated storage space.
The government tightened guidelines for self-storage operators after a blaze at a building in Kowloon containing storage facilities killed two firefighters last year (2016).
"The fire was the biggest accident since self storage started in Asia," Mr Luigi La Tona, executive director at the Self Storage Association Asia in Hong Kong, said in an interview. Some operators closed due to pressure from landlords and the cost implications of having to meet enhanced fire standards. There are now about 420 facilities, down from 500 facilities before the fire, according to the association.
JLL's Mr Tan said he expects the Hong Kong self-storage market to post 3 to 5 per cent annual growth over the long term.
"Self storage doesn't require many staff, and operators tend to use a lot of automation for invoicing, security and access," he said. "It is also easier to invest, manage and exit when compared to other alternatives."