Unpacking the Impact: How Current Economic Conditions Are Shaping Today’s Self-Storage IndustryUnpacking the Impact: How Current Economic Conditions Are Shaping Today’s Self-Storage Industry
Though self-storage continues to be an excellent investment, the economic conditions of the last year are having an impact on developers, investors and owners. Let’s examine the factors affecting the asset class including inflation, a sluggish housing market, consumer demand and more.
June 1, 2024

In a challenging market, investors remain optimistic regarding the self-storage sector thanks to its inherent resilience. However, it’s undeniable that our industry is feeling the effects of the broader economy.
Over the past several quarters, self-storage rental and occupancy rates have steadily declined, primarily due to reduced demand resulting from rising interest rates, sluggish home sales and shifting migration patterns. The good news is that owners and investors with the ability to adjust to this economic climate will not only ensure their survival but position themselves to thrive in a business where adaptability is a crucial factor for long-term success.
How We Got Here
Overall, things have been looking up for the self-storage industry in recent years. For example, the number of people using self-storage increased to 14.5 million in 2022, up by 970,000 since 2020, according to Yardi Matrix, which provides industry analytics. Over a recent nine-year span, U.S. facility owners saw an annual return on their investments of almost 17%, according to “Real Estate Daily News.”
That said, self-storage professionals are starting to feel the pinch of current economic conditions. Before we dive into the factors shaping today’s industry, let’s do a quick review of recent history:
2020-2021: The height of the COVID-19 pandemic. Americans became increasingly more comfortable with relocation, resulting in higher demand for storage space. Sales volume for self-storage assets increased 180%, from $8.4 billion in 2020 to $23.9 billion in 2021, according to Real Capital Analytics Inc., which offers data for commercial real estate.
2022: Moderation across the sector. A decrease in home sales and a reduction in consumer spending on non-essential items and services caused a slowdown in self-storage use. The average rate per unit decreased marginally year-over-year (YOY). In November 2022, the street rate for non-climate-controlled units was $128, a 2% decrease, while climate-controlled units averaged $144, an 0.8% decrease. Sales volume dropped to $14 billion.
2023: A market downturn. After a long string of interest-rate hikes and high inflation, the self-storage sector witnessed softened occupancy. The first three quarters of the year saw a combined sales volume of $14.2 billion. Most of that activity occurred in the third quarter with the merger of self-storage real estate investment trusts Extra Space Storage and Life Storage as well as the Public Storage acquisition of Simply Self-Storage.
Now here we are in 2024. Let’s look at the factors that are impacting the industry this year and how they might shape things moving forward.
Interest Rates
Interest-rate volatility has created significant change in the financial markets. In self-storage, rising short-term rates have impacted developers and owners who need construction and other similar loans. In terms of real estate, the number of facility sales in the U.S. decreased by 40% in 2023 compared to 2021, which is primarily due to the rising cost of borrowing and a general shortage of available funds. This decline presents challenges for owners with high levels of debt, though it opens doors for well-financed investors.
The Housing Market
In late October, the national average 30-year mortgage rate rose to 7.98%. YOY home sales had been declining since the beginning of August, dropping by 0.7% across the U.S., according to the National Association of Realtors. Fluctuations in mortgage rates have created volatility within the housing market, and this trickles down to self-storage, which gets a lot of business from people moving.
The housing market is also grappling with elevated home prices and limited inventory, all contributing to the decline in self-storage demand and street rates. Homebuyers may have to allocate more of their earnings toward mortgage payments or rent, leaving them with less disposable income.
Development
The new-supply pipeline remains stable at the national level, with the proportion of self-storage space under construction compared to existing inventory holding steady at 3.7% through March. Despite challenges in street-rate performance and a constrained capital market, there’s still significant interest in building. About two-thirds of the top metropolitan areas witnessed an uptick or remained unchanged in their construction pipelines in March, indicating that developer interest remains relatively constant.
The question is how many new facilities will actually come out of the ground, as there’s been a significant increase in abandoned or paused projects over the last year. As it becomes increasingly difficult to capitalize ground-up developments, expect to see more of this in the coming months.
Consolidation
The self-storage landscape has changed tremendously in the past five years, with a trend toward increased consolidation. In March 2023, Extra Space completed the largest transaction in industry history by acquiring Life Storage for $12.7 billion. The combined company is now the biggest storage operator in the nation, boasting more than 3,500 locations. Another prominent merger occurred last year when Public Storage bought Simply Self Storage from Blackstone Real Estate Income Trust for $2.2 billion. These unions demonstrate the acceleration in operational efficiency that occurs when an operator achieves significant scale in the marketplace.
Rental Rates
In March, we recognized a marked slowdown in the growth of self-storage street rents nationwide. The average annualized asking rent per square foot across various unit sizes and types stood at $16.25, a 4.5% decline compared to the national average of $17.21 a year prior, according to Yardi.
Same-store national street rates for combined non-climate-controlled units experienced a 4.2% YOY decrease, a significant slowdown from the average decline of 3.3% seen over the previous three months. Similarly, same-store asking rates for climate-controlled units of equivalent sizes saw a 4.9% annual decline, which is notably worse than the average decline of 3.9% observed December through February. The growth in street rates is expected to stay sluggish in coming months due to the slow housing market.
What’s Ahead?
So far in 2024, the housing market has continued its sluggish progression, and the Federal Reserve has held interest rates steady. There was speculation that rates would be cut at least three times this year, but as long as inflation continues trending the way it has, it now seems unlikely that there will be more than one rate drop.
Self-storage leasing velocity may continue to be slow in the coming months, so it's important for investors to be conservative when underwriting new opportunities and evaluating sites for development. A significant uptick in demand may not occur until there’s some interest-rate relief from the Fed.
Austin McLeod is vice president of Matthews Real Estate Investment Services. As an investment-sales specialist, he advises clients in the acquisition and disposition of self-storage facilities. Primarily focused on the Southeast, he works with a range of customers including private investors, developers, private-equity funds and institutional-investment firms. To reach him, email [email protected].
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