Self-Storage REIT Update – 1st Quarter 2024

June 17, 2024

The self-storage sector continues to experience headwinds due to seasonal changes, high interest rates, and depressed home sales. As a result, rents are expected to soften in 2024 despite healthy long-term fundamentals. Furthermore, operating expenses are expected to increase significantly, limiting NOI growth. As downward pressure on street rates continues, Existing Customer Rent Increases (ECRIs) will continue to prove to be a lucrative model for the self-storage industry. Self-storage properties performed remarkably well through the first half of 2023 with properties showing rapid rent gains and maintaining stable occupancy. A year later, demand has slowed with vacancy increasing, rents flattening, and all four major REITs adjusting guidance downward. In the near term, rent growth is expected to soften, although markets with limited new supply and positive demographic trends will likely outperform. High construction costs and interest rates have resulted in a reduced construction pipeline which should benefit existing operators in combating continuously lowering street rates and occupancy levels in the latter half of 2024 and into 2025. Nevertheless, long-term market fundamentals are expected to remain strong. Provided that self-storage players remain flexible and find unique ways to improve the consumer experience, the self-storage market has a positive outlook as a promising sector increasingly favored by investors for its resiliency.

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