The continued uncertainty in the broader capital markets environment remains a concern of market participants. This update analyzes key market data along with feedback gathered from a survey of self storage industry leaders.
- Transaction volume in the second half (H2) of 2024 totaled nearly $3.2 billion, which is 2.4% less than the average transaction volume reported for H2 from 2015 to 2019. The data for the H2 2023 is skewed due to significant M&A activity within the sector. This volume aligns more closely with transaction trends prior to the surge in self storage investments observed between 2020 and 2022, during which nearly $50 billion in transaction volume was realized, far exceeding the $35 billion recorded in the seven years prior (2013–2019).
- After reaching a peak of $172 per square foot (psf) in H2 2022, self storage valuations experienced a decline over six consecutive quarters, dropping to an average of $139 psf by Q2 2024. However, recent trends indicate a stabilization, with prices rising to $141 psf, according to Real Capital Analytics.
- The rising interest rate environment that began in March 2022 and went through July 2023, during which the Federal Funds Rate target rose to 5.25%, increased capitalization rates across commercial real estate sectors. Self storage capitalization rates increased by almost 100 bps in that time period, from lows of 4.00% to 4.50% in Q4 2022, to 5.00% to 6.00% in the second quarter of 2024 for a typical Class A facility in a top 30 MSA. While the Fed did drop its target rate 100 bps in the second half of 2024, recent decisions on tariffs by the current presidential administration may slow the need for the Fed to decrease interest rates if the fear of sustained or increased inflation persists.
- The Federal Reserve’s actions to taper inflation by increasing interest rates, along with the resulting decline in home sales combined and an influx of new storage supply, occupancy levels pushed downward and leveled out near 90% throughout 2024. As indicated by the top 50 MSAs, physical occupancy generally ranges between 85% to 92%, with economic occupancy lower by approximately 5% to 10%. For the first time in the past few years, the self storage sector experienced notable seasonality in 2024.
- In the H2 2024, asking rents in the self storage sector experienced year-over-year declines but showed signs of stabilization and improvement. In July, advertised rates were down 4.1% year-over-year (YoY), with an average rate of $16.40 psf. By December, the decline had moderated to 2.3% YoY, with rates at $16.28 psf. Several U.S. metros recorded positive month-over-month growth starting in September. This trend continued into Q1 2025, with advertised rental rates only 0.8% lower in February 2025 on a YoY basis. Notably, 11 of the top 30 MSAs saw an increase in rates YoY during this period.
- Supply and demand metrics appeared to be slowed compared to the previous year. Construction starts decreased 14% from last quarter and decreased 16% compared to Q4 2023. According to F.W. Dodge, there have been 575 new starts in the last four quarters, including new construction and alterations, additions, or renovations.
