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Business Advice

More SMEs switch to self-storage units

Many shun warehouses because of high industrial rents, slowing economy.
The Straits Times - October 22, 2012
By: Melissa Tan
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More SMEs switch to self-storage units Mr Lyle de Groot (left), who set up online gourmet food store Expatfoodhall.com, chose to rent a self-storage unit at Lock+Store's Chai Chee facility because of its proximity to his home and the flexibility it offers. Lock+Store's CEO Helen Ng (right) e

WHEN British expatriate Lyle de Groot set up an online gourmet food store in January, he thought outside the box when it came to storage.

Instead of opting for a traditional warehouse to pack his goods, Mr de Groot, 38, leased a 496 sq ft unit at a self-storage facility in Chai Chee.

He is among a growing number of bosses of small and medium- sized enterprises (SME) who have embraced the "do-it-yourself" attitude in the face of soaring industrial rents and a slowing economy.

The facility that Mr de Groot uses is run by Lock+Store, which has another one in Tanjong Pagar.

Mr de Groot, who lives in Tanjong Katong, said he chose the unit for its proximity to his home and the flexibility it offers his firm, Expatfoodhall.com.

He is among Lock+Store's roughly 2,000 customers.

Lock+Store was sold by Temasek Holdings' property arm Mapletree Investments in 2010 for around $50 million to a consortium led by private equity firm Southern Capital Group.

Lock+Store chief executive Helen Ng said she thought the Singapore economy was now mature and stable enough to accept self-storage, although she noted that self-storage is a million- dollar industry compared with the billion-dollar business dominated by industrial landlords.

Ms Ng expects the number of SME clients to grow by up to 10 per cent a year. Last year, they accounted for 26 per cent of the firm's clients.

Price is part of the appeal. Ms Ng said that traditional warehouse leases tend to be for at least three years, but customers at Lock+Store need to give only two weeks' notice to switch to a new unit. They can rent units ranging from 24 sq ft to 300 sq ft for between $88 and $850 a month.

Mr Mike Hagbeck, chief executive of self-storage firm Extra Space, said one of the largest storage units at its Eunos Link facility costs $1,436 per month for 450 sq ft, or $3.19 per sq ft (psf).

A warehouse, by comparison, would cost at least $2,500 per month for 1,000 sq ft at the very least, or $2.50 psf on average.

He added that Extra Space requires a security deposit of one month's rent but warehouses normally ask for at least three months' rent.

Warehouses also lack the 24-hour access that many self-storage facilities offer.

The decision to pick self-storage also depends on the firm's size. Self-storage units appeal more to smaller outfits, such as consumer goods firms that have offices elsewhere and need a separate storeroom.

Mr Hagbeck said customers in the past used his units mainly for temporary storage of furniture and documents, but more retailers are now leasing them to house inventory as retail space gets more expensive.

Competition among the major players is stiff as more firms enter the fray, lured by stable cash flows and healthy margins.

To draw in customers, Lock+Store offers 24-hour manned security and payment options such as iNets and PayPal.

Self-storage firm Big Orange gives customers a free trip by van to move their goods to its facility. It also lets them switch to bigger or smaller units without having to pay an extra fee or give advance notice, said operations manager Matthew Chee.

Its cheapest units - 32 sq ft - cost $80 a month while those over 130 sq ft cost $550 or more a month.

Mr Chee said the number of SME customers has grown between 5 per cent and 8 per cent a year since Big Orange started in 2007.

The company now has nearly 200 SME customers, comprising about 20 per cent of its clients across its four locations - in Woodlands, Bukit Batok, Hougang and Tampines.

Extra Space's Mr Hagbeck said SMEs make up around 20 per cent of its 6,000 or so customers, with the number of SME clients having grown tenfold since December 2007.

The perks it offers include a "concierge" to receive goods on behalf of clients.

Other operators dangle carrots such as full air-conditioning and insurance.

There were around eight self-storage operators in Singapore as at September last year, according to a Colliers International report published that month in collaboration with Lock+Store.

The first self-storage firm to open was Storhub in 2003, run by Hersing and CapitaLand.

Newer firms include Self Storage Solutions in Ayer Rajah, which was opened by SingPost in 2009, and EBC Self-Storage, which set up shop in Tagore Lane in 2010.

Hong Kong-based StoreFriendly opened in Bukit Batok in December last year and has already opened five facilities.

For these three firms, SMEs make up between 20 per cent and 30 per cent of customers.

There has also been some consolidation: Extra Space, which is not affiliated with a self-storage firm based in the United States with the same name, snapped up competitor Store-It in November 2010.

But the spike in warehouse prices, occurring as cooling measures drive investors out of the residential sector, could be a double-edged sword for some self-storage operators.

For instance, Lock+Store wants to expand but high prices are a deterrent.

"Now, prices are going through the roof. We won't go in at such high prices - it doesn't make sense for this (business) model," Ms Ng said.

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