Market Monitor

As the end of 2025 approaches, the self-storage industry finds itself navigating two converging headwinds: an increasingly active development pipeline, and the growing signs of a K-shaped economy. While each challenge is significant on its own, the combination presents a more structural issue for operators, owners, and investors. Development activity remains elevated across many U.S. markets, and despite widespread acknowledgment of “overbuilding,” new supply continues to be delivered. Many people are still underestimating the pace and scale of ongoing development. This point resonates with what we are seeing on the ground, projects that broke ground during the low-rate era of 2021–2022 are now opening into a very different operating environment.

Self-storage has always been a simple business built on a simple equation. Revenue minus expenses equals net operating income (NOI), and that NOI divided by a capitalization rate (cap rate) determines value. This straightforward formula has anchored the valuation of self-storage for decades and continues to guide the industry today. While the math hasn’t changed, the context around it has evolved dramatically over the past several years. The story of valuation in 2026 will be one of both return and refinement with a return to historical norms after the pandemic-era highs, and refinement of how investors analyze markets, risk, and operations within an increasingly mature asset class.

When I first entered the self-storage industry 20 years ago, it looked very different from the landscape we know today. Self-storage was still viewed as a niche investment class, often overlooked by institutional investors and lacking the sophisticated technology platforms that now drive operations. Over the past two decades, I have witnessed remarkable change: a once fragmented industry has matured into a highly institutionalized asset class with sophisticated revenue management tools, advanced data analytics, and a robust pipeline of professional operators and capital sources. This evolution has not only transformed the customer experience but has also elevated self-storage into one of the most resilient and dynamic segments of the commercial real estate market.

Self-storage investors are currently enjoying a rapidly rising stock market and surprisingly very stable debt market, albeit at elevated interest rates to the Covid era, but by historical standards in line with the 30-year averages. However, it is clear that there is a bifurcation in the investment market with Class A, major market properties commanding a premium valuation and still historically low cap rates, while secondary and tertiary market properties struggle to find buyers. Willing and able buyers, in turn, are expecting widely expanded valuations and meaningfully higher cap rates.

If you read last month’s Market Monitor, you know that a lot has changed over the last 12 months and we are starting to see “green shoots” as the bottom of the market is hopefully near. Factors impacting much of the U.S. economy are evident in the self-storage industry, which produced modest rent growth in June 2025 according to data compiled by Yardi Matrix, but also a slower than anticipated rental season, much to the disappointment of many industry insiders. After a white-hot listing market in April and May, new listings seem to be slowing down in June and July. Meanwhile, Argus closings in the first half of 2025 are up 17% over last year but the recovery has been uneven in several markets due to ongoing economic
uncertainty and a still-fragile housing market. Steadying national occupancy levels and a slight uptick in summer occupancy have continued to encourage self-storage operators to continue rent increases, albeit at much less aggressive levels and frequency.

Change and uncertainty go hand in hand, whether it’s looming inflation or the impact of rising interest rates, the stability of the economy is in question and creating uncertainty. Today, many are adopting a “wait and see” policy when it comes to evaluating the market for self-storage investments. We know that the three biggest risks to your self-storage value and the overall industry are investor sentiment, cap rates and overbuilding. These risks have been looming in the background for the last few years, but as our economy will inevitably change, so too is the likelihood that these risks will have a meaningful impact on the value of your investment.

Self-storage market uncertainty remains high today with lenders continuing to be cautious and bridge loan demand surging as new developments are leasing up slower than expected. As we head in to the summer leasing season, valuations have softened, cap rates have risen, and underwriting has tightened, but top-tier public and private buyers remain active despite valuation and pricing discovery. The most active buyers are confident that development has slowed due to construction and financing challenges as population growth and market saturation guide only the savviest developers to break ground on new self-storage projects. The amount of new supply deliveries over the past three years is equal to 9.3% of inventory and new deliveries of the past 12 months equal 2.9% of inventory according to Yardi. This slow down in new supply is giving buyers confidence that more compelling market fundamentals are starting to materialize and better results are coming!

While the last few years have been challenging for the self-storage industry, one of the most positive and productive results of the volatile economy and lower street rents is that it has forced operators to take a hard look at their management platforms, operating procedures, expenses, unit pricing, and how their properties compete within their respective submarkets. We have all learned to survive with lower revenue and NOI growth. Today, we are starting to see signs that self-storage fundamentals are bottoming.

Over the last 30 days, a sense of cautious optimism has returned to the self-storage industry. Whether it’s a seasonal uptick in move-ins, the beginning of what we hope will be a more normal leasing season, or SmartStop CEO Michael Schwartz calling the bottom of the market at this month’s SSA meeting in Orlando—there are real signs of improvement. The bottom line is that we are seeing signs that market fundamentals are improving as home loan applications are on the rise, two of the four publicly traded self-storage REITs have increased their street rates, and Argus has listed 14 new properties this month with over $100 million currently in escrow. Buyer and seller expectations appear to be aligning, and valuations are firming up.

As the self-storage sector continues to evolve, technology has become an essential tool for improving operations, enhancing customer service, and streamlining processes. One of the most critical aspects of managing your self-storage investment is accurately assessing what creates value. However, despite the advantages that technology brings to self-storage valuation today, the importance of human insight and touch remains crucial.

As we do every year in January, top executives from around the industry gathered in New York City and Big Sky, Montana to discuss industry trends, market fundamentals, and the overall market outlook for 2025. The consensus this year is that the industry continues to feel the effects of a slower housing market, volatile debt markets, downward pressure on unit pricing driven by REIT unit pricing models, and lower occupancies across the board.  These current headwinds have kept investor sentiment in check. As we head into 2025, the market outlook remains realistic yet cautiously optimistic. We hope the market has bottomed out and that valuations and fundamentals will improve throughout the year.

We have reached the time of year when we reflect on the lessons learned in 2024 and set our sights on 2025. Without question, 2024 proved to be a very challenging year. There was real anxiety related to soft market fundamentals, rising interest rates which made most investment reports irrelevant, and pricing discovery on every deal. In many ways, 2024 was not that much different than 2023.  What we do know is that the investment market has continued to evolve and the overall outlook for 2025 is cautiously optimistic.  Over the last 3-6 months the Fed has started to cut interest rates and provided insights into potential future interest rate cuts for the coming year. However, the impact of the Federal Reserve’s rate cuts on the self-storage industry will be minimal at best and will not have an immediate impact on cost of capital to self-storage investors or property valuations.  But it will have an impact on consumer confidence and market sentiment while also having a trickle-down effect to self-storage customers.  We have also started to see improvement in leasing velocity and rental rates seem to be stabilizing according to Yardi, but it is too early to tell if the market has bottomed.