5 Potential Threats to Your Self Storage Business in 20245 Potential Threats to Your Self Storage Business in 2024
Current economic conditions create fresh vulnerabilities for the self-storage industry. An industry expert shares the five potential threats that are on his radar for the remainder of the year and should be watched by other facility owners, investors and builders.

Many people look at the self-storage industry from afar and say, “Now that’s an easy venture.” It isn’t true. Though it may have a simpler, more predictable business model than other types of real estate, self-storage is a serious enterprise and shouldn’t be treated like a hobby. Facility operators, developers and investors face real challenges. Following are five potential threats that are on my personal radar for the year ahead. You might want to keep an eye on them, too.
Threat 1: Economic Tightening
The self-storage industry generally welcomes a recession, as operators tend to benefit from the financial challenges it creates for businesses and consumers. For example, home and office downsizing can often lead to increased demand. However, an economic downturn can also negatively impact tenants’ ability to afford rent. During tough times, people prioritize cost-cutting, sometimes giving up expenses that might be deemed as non-essential, such as offsite storage. Operators may see more move-outs as customers face budget constraints and tighten their belts.
The continued high-interest-rate environment has already impacted the self-storage sector in many ways and will continue to do so. The first and most obvious effect is the increased cost to build. New projects may not pencil out at today’s rates, which are expected to remain relatively high for the rest of the year. Then there’s the mortgage for the finished product to consider, if the owner will be taking out a loan. Finally, high interest rates mean reduced activity in the housing market, which has always been a primary driver of industry demand.
Finally, existing self-storage operators who are staring at a loan expiration and need to refinance are likely to be negatively affected not only by higher rates but the lower loan-to-value (LTV) lenders are offering. This may force some to come to the closing table with cash to offset the lower LTV and asset value. In some cases, they may have no other choice than to sell because they won’t be able to service the debt with a higher monthly loan payment.
Threat 2: More Stringent Lending
In addition to facing higher interest rates, self-storage developers, investors and owners are contending with the fact that some lending institutions have backed away completely from construction lending. Those that have remained have lowered the LTV for new development to 50% to 60%, which means you’ll need a much higher down payment on a loan than in the past.
LTVs for self-storage acquisitions and refinancing have settled at 65% to 70%, with 75% representing the high end if you have a strong existing relationship with your lender. Private equity has also slowed its appetite for self-storage, citing the compressed yield and other previously mentioned factors that may erode their returns.
The combination of reticent lenders and lower LTVs has made it difficult to find a profitable investment. Given the higher cost of borrowing and longer lead times associated with building the capital stack, it’s also more challenging to have confidence that one can obtain the necessary funding.
Threat 3: Increased Competition
In its third-quarter 2023 market report, real estate data and research firm Yardi Matrix forecasted greater self-storage supply for this year, with nearly 114 million rentable square feet in the pipeline, a significant increase over a year ago. Though higher interest rates have made it difficult for some new starts, many projects were already in the planning stages when rates began to increase.
In addition, there are many real estate investment trusts and other large industry players with cash to deploy, and they still view self-storage as a great hedge to a potential recession. With existing facilities becoming harder to acquire, the only way to scale and produce yield is new development. As a result, there are several markets that may face oversupply, leading to increased competition and potential price wars.
Threat 4: Changing Consumer Preferences
Changes in consumer spending habits, especially among younger generations, might impact future demand for self-storage. Preferences for minimalism or sustainable living may reduce the desire for excess belongings and the need for storage space.
However, this possibility—and related worry—has existed for many years, and we have generally found it to be a non-issue. The generations following the Baby Boomers may not have an appetite for more stuff, but they are more transient and live in smaller spaces, which has increased the demand for storage among Gen X, Millennials and Gen Z.
Threat 5: Increasing Regulation
The industry continues to battle new laws and regulations related to zoning, land use and taxes that could affect the viability and profitability of new or existing facilities. For instance, moratoriums on new development are gaining momentum in certain areas. In some places, self-storage is being once again relegated to industrial parks, which are less desirable and not as easily accessible to the target population.
New and more stringent government and environmental regulations could pose a threat to self-storage development, too. Many municipalities have already tightened their guidelines regarding construction materials and curb appeal.
For example, where gravel could once be used for facility driveways and parking lots, pavement is now often required. Landscape packages used to comprise five trees and five bushes, whereas now, 10 of each are required, and they must be more mature (i.e., more expensive). Components such as fencing, cladding and external lighting are also being scrutinized and upgraded. Compliance with these new building regulations can lead to costly modifications and might even prohibit a project from moving forward.
Seek Solutions
To mitigate these potential self-storage industry threats and maintain a competitive edge, consider these and other simple strategies:
Diversify your products and services to facilitate the production of more revenue.
Adopt sustainable and technology-driven operational practices, as these are more attractive to the modern consumer.
Stay informed about market trends.
Focus on exceptional customer service.
Pay attention to and revisit each of the above areas with your self-storage team throughout the remainder of the year. Forward thinking will be essential to effectively navigate any challenges that arise.
Since 1993, Scott Meyers and his team at Kingdom Storage Holdings have acquired, developed and managed more than 4,300,000 square feet of self-storage throughout the United States. Scott is also the founder of SelfStorageInvesting.com, an industry education company that publishes books and software, conducts live seminars and podcasts, and offers one-on-one coaching and mentoring services. In addition, Scott operates The Self Storage Mastermind group. You can reach him at [email protected] or linkedin.com/in/scottameyers.
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