UL: Thank you for being with us today. Please tell us about yourself, Ichigo, and Storage Plus.
I have a structured finance/corporate finance background in US and Japan. I started my career right after my graduate program as an associate at a Japanese bank in Washington, DC. I continued working in that field for almost 20 years before joining Ichigo in 2017. Ichigo is a sustainable infrastructure company. As a real-estate developer, Ichigo owns and operates various real-estate assets such as offices, hotels, retail, and residential spaces. We also invest in renewable energy power plants, such as solar and wind. In the summer of 2017, we acquired Storage Plus. Back then, it consisted of only 16 facilities, but over the last five years, we have more than doubled the size of the operation: We now have 35 facilities with 4,500 units altogether. Our facilities are located all across Japan; four are in Hokkaido, one in Fukuoka, and several in Tokyo and Kanazawa. On average, we have approximately 130 units per facility, which makes us a little larger than the average in Japan, though a lot smaller compared to other mature markets.
UL: What differentiates Storage Plus from other operators?
We pride ourselves on operating higher-quality self-storage facilities in the Japanese market. Like many in Japan, our facilities are unstaffed, but we pay special attention to safety, so our customers can come even in the middle of the night, if they want, without feeling unsafe or at risk. What overseas visitors often find surprising; is how clean the facility is. We have carpeted floors, and everything is kept in tip-top shape. Self-storage in other countries has an industrial feel, with bare floors and walls. But a lot of it comes down to the Japanese culture and mentality. Customers are careful and respectful of the facility. Regarding income, we target the middle and upper-level echelon of customers, so we have to meet a certain expectation level of service and facility. But it also means that we, as a company, are more conservative regarding credit analysis and prudent decision-making.
UL: Regarding self-storage automation, facilities in Japan are unstaffed, so they already operate on quite a high level of automatization. What technology do you use at Storage Plus?
Remote access control is the most significant thing in unstaffed operations. Customers can make an appointment to visit before signing in to take a look at the units. On location, they can call us, and we will open up the entrance, elevator, and floor access. The units themselves still have a physical key. We don’t have staff to show the visitors around; it’s all self-guided. But when we open a new facility, we usually have a team on location for a while to welcome prospective customers until everything is running smoothly.
Obviously, there’s room for improvement. Operators in Japan haven’t digitized many units yet, whereas, outside Japan, customers use smartphones to open the doors. Japanese facilities are unstaffed in part because of operational expenses. But when we entered the Covid-19 pandemic period, everybody else outside Japan was playing catchup with contactless operations. Looking back, Japanese operations have proved excellent in terms of safety, public health, and convenience. Japan generally is a very safe environment, and we need fewer security measures than other places. For example, we have metal shelves on the floors for customers to use or borrow. When we had visitors from the States and the UK, for example, they all were surprised those shelves don’t get stolen or broken regularly.
UL: Do you have more B2C or B2B customers for self-storage?
I don’t think the customer base is much different from everybody else. Usually, the ratio is 30% business and 70% retail. But it varies from location to location. At one of our facilities in central Tokyo, more than half of our customers are local small businesses or offices. But across Japan, I would say the average is 30:70.
UL: Japan still is in early development, and the self-storage market share is low. In your opinion, as an invester, what are the main challenges that self-storage is facing in Japan?
The land price makes it very challenging to open, build or convert larger facilities. That’s one of the challenges, especially in big cities. Japan has had a strong deflationary environment for the last 20 to 30 years. I hope that will change. It may not be the best thing for consumers, but everything else has become more expensive in the last six months. It’s good timing to seriously consider raising rates for self-storage going forward. The population is another challenge. Except for Tokyo and Osaka, the population is decreasing in Japan, unlike in other countries in Asia. But on the positive side, living space remains limited, and we still have good market growth potential.
The final big challenge we face is awareness. Covid helped us a bit when everyone started working from home or relocated from the city center. Whenever relocation or dislocation takes place, self-storage will benefit. We also work with other operators and the Self-Storage Association of Japan to tackle the awareness issue.
UL: If you could implement any best practice from anywhere in the world in Japan, what would it be?
Of course, more space would be ideal—land to build large-scale facilities. But to stay in the world of real estate investment– revenue management would be the best. Japanese operators tend to compete with each other by giving discounts to customers. This is a way of filling the space quickly, but it is not helping the industry. It becomes even harder to raise prices. I hope more operators will become sensitive to the potential of analyzing prices in Japan and be more strategic about it. The industry also needs to be more institutionalized. Many operators are still SMEs and or a Mom & Pop type of businesses. Nothing is wrong with that, but in terms of economies of scale and adoption of technology, some consolidation will significantly help the industry grow in Japan.
UL: What trend do you see in the future of the self-storage industry in Japan?
Thankfully I don’t see anything threatening the industry as a whole. Self-storage is known to be very defensive and robust in terms of downturns compared to other asset classes. Many non-Japanese investors are keen to enter the market, which could prove to be an opportunity. The majority of the sector has been pretty domestically-oriented. So non-Japanese players coming in could prove to be interesting.
Something that is not often talked about is that self-storage has very strong ESG (Environmental, Social, and Governance) implications. According to research, emissions are 86% lower than other asset classes. Energy consumption is 84%, water consumption is 92%, and waste production is 82% less. This is an excellent track record. Unfortunately, not many people talk about this in Japan, mainly because players are not large enough to project themselves as role-model ESG players. Some facilities try installing solar panels on the rooftops and replacing standard light bulbs with LED. But the driving motivation is lowering operational costs, not necessarily leveraging the inherent potential of lower emissions or ESG. （Learn more about energy management for Self-Storage from HERE）
UL: One would think such an ecological benefit would be on the front page of the marketing material to attract ecology-conscious investors. Why do you think this topic is not discussed more prominently?
That’s an excellent question. Thank you. Most members of the Japanese industry are primarily SMEs. It would take time for the sector to fully understand the significance of being a responsible investor/operator and projecting themselves as such. For example, the industry as a whole in Singapore is more sensitive to ESG topics, especially in corporate messaging. At several recent industry conferences, I have advocated this issue as much as possible. So I do my share of talking about this, but everybody needs to pick it up more, and we have to play catchup in Japan.
UL: To wrap up, what are your plans for 2023 and beyond?
We are a real estate investor, so we like to leverage our expertise in adding value to our self-storage assets. Leasing is a big part of our strength. Further implementing investment discipline and strategic thinking are important topics in our thinking this year and beyond.