Personal Finance

To-let: For things only

Meera Siva | Updated on August 03, 2020 Published on August 03, 2020

The report also said that compared to the levels seen during the same quarter last year, unsold stock declined 13 per cent in the eight cities, primarily on account of fall in new launches   -  G Ramakrishna

Storage space can be an option for some property owners, with caveats

If you have trouble finding tenants for your property, you can consider renting it out as a storage space. While this was always a fallback option for many landlords, especially for older property that remains locked, there may be merits to evaluate this option in the current scenario.

There is currently increased demand for storage spaces, due to the Covid-19 pandemic. Offices are shutting or reducing size and looking for inexpensive spaces to keep their furniture, computers, and documents. Many tenants have also moved out of their city accommodations, to work remotely and are on the lookout for storage space. This has added to the traditional demand — from people who may be relocating temporarily and small dealers of goods such as pharma. Organised storage space for retail customers is in its infancy and landlords can hence, find short-term opportunities now.

What is the rent one can expect for the property?

In general, the rent per sq ft you can get would be much lower than renting it out to tenants. For example, if the going rate is ₹20-30 per sq ft for apartments in an area, you can only expect ₹10-12 per sq ft.

Is there a minimum size requirement to rent out?

There is no minimum sq ft of property that is needed. For instance, you can let out even one room in your home for storage, if it suits the tenant. If you have a 2-BHK, you may even rent it out to two people, with one room to each, and other areas shared.

What sort of property is better suited as storage rental?

Theoretically, any secure space can be let out. Individual homes and lower floors may be preferable. Also, given the lower rent, older homes without many facilities, water or other infra issues or those in less prime locations can be good bets, as they may not fetch higher rent anyway when let out to tenants.

If you live in an apartment, you must check with the management of the society on whether the rules allow letting out the space for storage. This is particularly important if you expect more frequent loading/unloading due to the short-term nature of the lease or items stored.

How can I boost the rent from the property?

One idea to increase rental yield is to target PG students and working professionals. Typically, they have limited number of items and you can earn higher return by letting out the space to multiple tenants, each paying about ₹2,000 or less per month.

You can also earn a higher rent by adding more desirable features. For instance, having a CCTV camera, burglar alarm and private entrance provide comfort of security.

Should the place be insured?

Yes, you must take insurance for the property and have the tenant insure the belongings. It is advisable to declare it is used for storage purposes and take insurance accordingly. The annual premium for a cover of up to ₹20 lakh may be about ₹6-7 thousand.

It may also be good to take liability cover. This will protect you in case of any accidents while loading/ unloading the items and limit your liability on damages, should anything happen while in storage.

I have vacant land outside the city. Should I build on it to let out for storage and earn income?

The profitability of the storage or warehousing segment depends on a number of factors. A recent report by Knight Frank noted that warehouse space demand has been growing, driven by e-commerce. The share of this segment has increased to 23 per cent in FY20 from 15 per cent in FY18. Besides the top eight cities, there is increasing demand from smaller cities such as Ludhiana, Coimbatore, Vapi, Guwahati, Bhubaneshwar, Surat, Lucknow, Patna and Siliguri, thanks to growing e-commerce penetration.

However, before you invest, be clear on the sophistication you want to add. Vacancy levels for lower-grade warehouses in many industrial areas are quite high — over 20 per cent in some cities. It may be prudent to enter into long-term agreements with logistics providers before you go down this path to build a grade-A quality godown. For example, supply chain platforms such as Ninjacart are expanding their operations and you can consider building a warehouse space that fits their needs.

How can I find tenants?

Besides online listing and offline brokers, you can also work with property management companies. For example, findbhk helps property owners find suitable tenants for storage, plus help with handling operational aspects.

Another option for city properties, is to look at e-commerce and other logistics companies. These companies want to supplement their warehouse hubs in the outskirts with smaller spokes in the city, to reduce delivery time (particularly useful for perishables).

You can also work with on-demand space providers such as Storespace, that offer value-added services such as warehouse management. Once your warehouse is verified and on-boarded, it is matched with the requirements such as size, location, and other facilities of the companies.

Protected space

It is advisable to insure the place that is let out for storage and include liability cover

Story of storing

Covid-19 demand

E-commerce growth

Low rent potential

(The author is an independent financial consultant)

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Published on August 03, 2020
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