Case Study: Self-Storage Solutions in Ulaanbaatar

When investing in Real Estate in an emerging country like Mongolia, we have always found it best to look at the smaller niche market that are completely unexploited. Mongolia still abounds in those but today I would like to explore one of those in particular; the self-storage solution.

Nearly every country in the world has some form of institutionalised self-storage solution, it is all over the US, the UK and can now be seen all over China. The concept is simple; provide different sizes of basic self-storage solutions ranging from small lockers to garage sized units. Each closes individually and the compound provides general security, constant temperature and humidity and may well also provide a larger communal space for longer-term storage in addition to a wide variety of accessories.

Mongolia is perhaps the country in the world which makes the most sense for such a self-storage solution but surprisingly no one has yet implemented the concept.

Mongolia is not only a country of nomads, its economy is entirely seasonal with considerable activity in summer while winter is calm. Beyond that, Ulaanbaatar is a city undergoing massive growth with over half its population living in temporary housing and looking to relocate to permanent structures. In addition to all of those points, Mongolia is going through the worlds biggest mining boom and along with it is the development of a mining supply chain as well as infrastructure developments. All this leads to a considerable pent-up demand for self-storage in the capital.

As real estate agents, one of our most regular requests is for a garage space or cheap empty apartments in which tour companies, supply chain operators and small businesses that operate during the summer months only could store equipment, vehicles, tools and stock /inventory for a few months at a time and still maintain constant access.

Furthermore, as Mongolia is not a manufacturing country and relies on imports from other countries for its economy to grow, a vast majority of businesses in the country need to import and store their stock/ inventory, be it food, furniture, construction equipment, supplies, spare parts etc... We ourselves rent 2 entire houses in Gandan to store our own supplies and equipment.

The cost of land connected to infrastructure near the airport is still reasonable (on average about 7USD/sqm) and the cost of construction of a self-storage type warehouse is about 350USD/sqm, another 10USD/sqm should be counted for infrastructure improvements. This means that we would expect an average investment of about 290USD/sqm for a minimum land size of 10,000 sqms on which 80% is built up thus requiring a total investment of 2,970,000 USD. If we assume that we have a 85% leasable area (6,800sqms) on the built up area at 5USD/sqm/month which amounts to a gross rental income of 34,000 USD a month (408,000USD / year) which amounts to a gross yield of 14% and an estimated net yield at 12%. Better economies of scale and use of space can be achieved on a large plot of land. In addition to which we would expect a capital growth of approximately 15% per annum for the next five years. A marked advantage of such a scheme is also the relative speed of construction and set-up (about 6 to 8 months) and the considerable demand in addition to the low cost of maintenance and operations.

This might not be the most lucrative investment but we believe it to be a unique product in a fast growing market with considerable potential for duplication and economies of scale.

SOURCE OF THIS ARTICLE : M.A.D. Investment Solutions