Self-storage REITs have seen demand tempered by the ongoing downturn in the nation’s housing market, but signs are emerging that point to fundamentals stabilizing in the year ahead.
In its third quarter earnings report, Extra Space Storage Inc. (NYSE: EXR) CEO Joe Margolis noted that while same-store revenue remained relatively flat, “we are encouraged by the gradual improvement in market fundamentals. This improvement has resulted in accelerating new customer rate growth.”
Also commenting on third quarter earnings, Public Storage (NYSE:PSA) President and CEO Joe Russell said the REIT was raising its 2025 outlook for the second consecutive quarter, based on outperformance in net operating income (NOI) growth, acquisition activity, and core funds from operations (FFO) per share growth. Meanwhile, CubeSmart (NYSE: CUBE) President and CEO Christopher Marr pointed to continued stabilization in operating trends.
Year-to-date returns for self-storage REITs were down 8.1% as of Dec. 1. Data from Nareit’s quarterly REIT Industry Tracker as of the third quarter indicates that the sector’s FFO grew 12.5% year-over-year, following two previous quarters of declines. NOI in the third quarter rose 3.9% year-over-year, while same store NOI dropped 1.4%.
REIT.com spoke with Spenser Glimcher, sector head of self-storage and net lease at Green Street, and Michael Goldsmith, U.S. REITs analyst at UBS, for their views on current and future trends in the sector.
How are the key demand drivers for the self-storage REIT sector holding up within the current macro environment?
Spenser Glimcher: The self-storage industry historically has relied on the housing market and people’s need for short-term storage when they move. However, the housing market has been near 30-year lows for two years and there is no inflection point in sight with mortgage rates in the mid-6% range.
In lieu of home buyers, long-term apartment renters—those who cannot afford to buy—are helping support storage fundamentals. While these customers can’t afford to buy a home today, they are still going through life events such as getting married, having kids, relocating for work, etc., and are using storage as a solution to their need for more space.
The longer that home buying is a distant dream, the longer these customers keep their stuff in storage. Ideally, there is a mix of these customers, home buyers and long-term renters, but today the self-storage operators are grateful to have just the latter.
Michael Goldsmith: Self-storage demand is heavily influenced by disruption in people’s lives, and this remains constant today. The biggest change in recent years has been the lack of consumers using self-storage as temporary storage while moving. According to a UBS Evidence Lab survey, those using self-storage for this reason in the third quarter of this year was 35%, below the long-term average of 37%, and the peak reading in the third quarter of 2020 of 41%.
As of the third quarter, new and existing homes sold on a seasonally adjusted basis were 4.4 million, down from the peak in the fourth quarter of 2020 by 36%. We think this reflects higher mortgage rates. From the first quarter of 2006 to the third quarter of this year, the change in housing turnover has had a 0.58 correlation with the change in average REIT occupancy. Thus, we believe that housing mobility needs to pick up for demand to accelerate.
Still, there are offsets. Those using self-storage as temporary storage while remodeling has picked up according to our survey. Generally though, the recovery of home sales is likely needed to jumpstart demand.
Are these factors reflected in rent growth trends in the sector?
Glimcher: Absolutely. Rents charged to new customers are just starting to go positive, on a year-over-year basis, for the first time in two and a half years—reflective of the dismal top-of-the-funnel demand environment in storage. Additionally, the average portfolio rent roll down (the difference in rents charged to new customers relative to the in-place rent charged to existing customers) is currently about 35%, whereas it is historically 10% to 15%. This also highlights how steeply new rents have been discounted to attract new customers.
Goldsmith: Move-in rates have bounced off the bottom, which is a positive indication for the group. This may reflect more steady overall trends while lapping easy comparisons, rather than a material step forward in underlying fundamentals. Given that only 4% to 5% of self-storage customers churn each month, it should take several quarters for the benefit of better move-in rates to have a more meaningful impact on the overall rent roll.
What is the outlook for supply growth in the next few years?
Goldsmith: Supply growth in self-storage is expected to moderate in the coming years, which should be a positive. Specifically, Yardi pushed its supply forecast as a percentage of existing stock for 2026 slightly higher to 2.3% (prior 2.2%) versus 2.9% (prior 2.8%) for 2025. That said, there remains existing supply from the last several years that requires absorption. New facilities can take three years to fully lease up. As such, the impact of supply should linger even as deliveries moderate.
Glimcher: New development continues to face significant headwinds, including land and construction costs approximately 50% above pre-pandemic levels, tighter lending standards, and challenges in underwriting future rents. Consequently, despite permitting and zoning approvals, fewer projects are breaking ground, with annual supply growth projected at just 1.5% from 2025 to 2027.
Supply growth is expected to increase in 2028 and 2029 to approximately 2% per year, assuming the demand landscape starts to somewhat return within the next 12 months. Muted supply growth presents a silver lining in an environment where storage fundamentals are already struggling. The presence of additional supply amid a muted demand backdrop would be catastrophic for self-storage operators. Thankfully, supply won’t come back in a meaningful way until demand returns and developers can underwrite rental rates with some degree of certainty.
Do particular geographic markets have more capacity to absorb supply?
Glimcher: Markets with higher utilization rates, stronger population and job growth, and higher median household incomes have the ability to absorb more supply.
Goldsmith: We think the Sunbelt markets overall remain challenged due to new supply. Within those markets, we think the best positioned submarkets are those closest to urban centers. These submarkets should draw a longer-term customer who is more likely to use storage for space needs. In comparison, second-ring suburban locations may be more dependent on demand from people using storage temporarily while moving. Given the slower home sale market, we think these submarkets may remain relatively more challenged than urban facilities.
How are institutional investors allocating to self-storage relative to other real estate sectors, and what does that mean for capital availability?
Glimcher: Institutional capital is reportedly getting more constructive on self-storage, but much of this capital remains on the sidelines as investors are waiting to see clear signs that the sector is on its way to a recovery after two years of dismal NOI results. With 2026 shaping up to look like a repeat of 2025, it seems likely that such capital will find a home in other sectors before finding its way to self-storage.
Goldsmith: Interest in self-storage remains strong from institutional investors. However, the transaction market has been muted over the last two years with a wide bid/ask spread. Sellers expect valuation cap rates closer to the peak of the cycle that factor in improving NOI growth. In contrast, buyers expect a discount given uncertainty around the intermediate-term demand outlook. We believe the gap between buyers and sellers has come in recently, which has led to more transactions.
Do you see potential for additional scale in the REIT self-storage sector through M&A activity?
Glimcher: The industry remains highly fragmented, with REITs estimated to own just 15% of U.S self-storage real estate. REITs will undoubtedly continue to consolidate the industry via the acquisition of private portfolios and one-off properties. Public to public M&A also remains on the table as companies like Public Storage (NYSE: PSA) and Extra Space Storage Inc. (NYSE: EXR) are large enough to write checks for their smaller peers and have experience integrating large portfolios and companies onto their platforms.
Storage is one of the few real estate sectors that has explicit benefits of scale that make M&A so appealing. The more consumer data a storage company has, the better its revenue optimization and expense savings are, which pushes operating margins higher.
Goldsmith: We think REITs have the ability to continue to consolidate the self-storage industry through acquisitions of privately owned assets and portfolios. That said, pricing will be key as self-storage REITs do not currently have a cost of capital advantage through the ability to issue equity.
Our estimated implied cap rates for the group range from Public Storage (NYSE: PSA) in the mid-5% cap rate range to CubeSmart (NYSE: CUBE) in the mid-6% cap rate range. There may also be additional opportunities for REITs in the sector to expand their third party management platforms, especially as the operating environment remains challenging and requires more expertise.
Looking ahead to 2026, what factors do you see having the most impact on self-storage performance?
Glimcher: The housing market will be the most important factor in 2026, as consumers need to start buying homes again before we see a real change in rental rates. Consumer health is also important because if people are struggling to put food on the table or pay rent, they will soon reconsider their monthly storage bill, regardless of how inconvenient it may be to their belongings or how sad it is to say goodbye to belongings they ideally do not want to get rid of.
Goldsmith: We think the key to stronger revenue growth in 2026 within the self-storage space is increasing housing turnover. While these customers tend to have shorter stays, we would expect them to play an important role in driving demand and move-in rates higher, as well as absorbing new supply and accelerating lease-up timelines at unstabilized properties. At the same time, a recession which results in material dislocation could also have a positive impact on demand. Though, this demand may be more price sensitive.
Are there any other notable trends or developments you are watching in the REIT self-storage sector?
Goldsmith: We are monitoring for emerging demand drivers, such as temporary storage while remodeling, to pick up the slack for factors that have not been as strong. Similarly, we are watching the longer-term self-storage customers to determine if they are moving out of facilities. This could become more prevalent in a slower macro environment.
In addition, the continued complexity of the pricing environment should continue to drive independent operators to the REITs’ third party management platforms. Further, with cost of capital under pressure, REITs could look to form joint ventures to drive better economics and produce higher returns.