Elon Musk, the man behind the Tesla electric car, is also involved in pioneering private ventures into space. Recently, his space exploration company has been taking orders for people who would like to send some of the ashes of a loved one on a two-year space odyssey that would have them circling Earth in his proposed space vehicle.
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A friend who recently secured a spot on the flight for a deceased family member tells me that there are 300 slots available on the flight – with a ticket price of US$2,500 each.
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Before I elaborate any further, let me ask you a question: Can you guess what sector of the U.S. public real estate space has performed best over the past two decades?
Grade A office space? Residential property? Retail? No: It’s the self-storage sector… which easily occupies the most mundane and least glamorous spot of the real estate spectrum. This is simply where individuals and businesses rent some space and store their belongings (personal effects, furniture, corporate documents)… that’s it.
Take a look at the breakdown of compound annual growth returns (CAGR) in U.S. real estate investment trusts (REITs) by sector over the past two decades. A US$1,000 dollar investment in self-storage REITs back in late 1993 would be worth over US$30,000 today.
I’ll highlight two conclusions from the table above. Self-storage comfortably outperformed every other real estate sector. More importantly, REITs across the board have outperformed the S&P 500 over the past 20-odd years. I’m a big believer that you should have REITs in your portfolio. These are real companies backed by real assets and income.
The self-storage boom
Back to the self-storage market. The U.S. has by far the largest and most extensive self-storage industry of any country globally, with close to 7.5 square feet of self-storage for every man, woman and child in the country.
Australia, the next largest market on a per capita basis, boasts 1.2 square feet per capita, a fraction of the U.S. market. Europe is generally underserved by this business. The U.K. is the only country in Europe that offers more than 0.5 square feet (0.59 sq ft) of self storage space per capita. For many countries in Europe, the per capita provision is less than one-tenth of one square foot per person.
Hong Kong and Singapore, where residential housing is small and expensive, have the smallest self storage space per capita on average in the developed world. The industry provides a mere 0.62 square feet per capita in Hong Kong and 0.28 square feet in Singapore.
China’s self-storage players provide a minute 0.0006 square feet per capita. That represents 0.9 of one square inch – less than the area of your thumbnail.
Asia, and China in particular, are ripe for growth in this sector
This mundane business is a growth industry in places like Hong Kong, Singapore, China and other rapidly developing consumer societies. Just take a step back and think about the bigger picture for a moment.
Between 2014 and 2050, India and China are projected to add approximately 700 million people to their urban areas. In other words, the equivalent of two times the entire U.S. population will be moving into cities across India and China over the next three decades.
The second factor to consider is this: There isn’t much space for these folks to live. In Hong Kong, for example, the average apartment size is less than 500 square feet.
So when you have a lot of people, who are increasingly joining an upwardly mobile consumer middle class, moving into small apartments, then we know that the demand for self-storage space will increase as well.
Similarly, as office space becomes increasingly expensive, we’ll see demand from the corporate sector. Companies are required to retain records, and still continue to do so in paper form. Storing records in self-storage facilities is a cost-effective solution for many smaller businesses.
Measuring volume rather than square footage
When we look at self-storage we tend to use the same metrics in determining value as we do for other property uses. We look at effective rental per square foot (or square metre). For storage, as a user, we’re concerned more about volume rather than square footage.
How much household gear and boxes can I squeeze into a particular cubicle? To determine that, we need to look at our monthly cost in terms of cubic feet or cubic metres of storage volume.
A storage cubicle in Hong Kong, for example, with an internal floor area of four by five feet, has a usable volume of about 180 cubic feet. Rent for a cubicle of this size, in a good quality facility with air-conditioning, parking and industrial grade lift access will cost around US$10 per cubic foot per year. This is enough to store a couple pieces of furniture, a few big suitcases, half a dozen document boxes and some sports equipment.
As for outer space self-storage (no pun intended)
Assuming that the Musk space vehicle takes 25 percent of the ashes of 300 deceased people, the total amount of space that will be used to store these remains in outer space will amount to a fraction under seven cubic feet, according to my calculations. That’s equivalent to a box 3.5 feet long, two feet wide and one foot deep. A little bigger than that grand suitcase you take on holiday.
This equates roughly to about US$53,750 per year for each cubic feet of extra-terrestrial storage versus US$10 above.
But back on Earth, look to Asia
As I said earlier, Asia is drastically underserved in the self-storage space. Just look at the table below. Again, China… the most populous nation on Earth has less than a hundred self-storage facilities!
Not only will demand be underpinned by urbanisation, but other factors such as:
Death: with increasingly aging populations in Japan and China in particular, as people pass away their belongings are often stored before being distributed amongst relatives and disposed of by executors.
Divorce: increasingly common and accepted in Asia, divorce is a big driver of storage demand. As couples separate, and typically downsize, they use self-storage for belongings – especially larger furniture items that do not suit an intermediate single lifestyle.
As this sector matures, we will see more opportunities arise in this space and we will look to capitalise accordingly.
Article by Stansberry Churchouse