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ISS BLOG - Is 2025 the Right Year to Develop Self-Storage? An Owner and Real Estate Expert Weigh the OddsISS BLOG - Is 2025 the Right Year to Develop Self-Storage? An Owner and Real Estate Expert Weigh the Odds
Is 2025 going to be a good year in which to build self-storage projects? Developers are wondering as they watch fluctuations in the market. In this article, an industry owner with five properties and a well-known real estate expert weigh the potential risks and rewards, providing a few predictions for the year ahead.
3 Min Read
Is 2025 the right year to build self-storage projects? Developers are asking this million-dollar question.
History has taught us that we won’t recognize having hit the bottom of the current real estate cycle until at least six months after it happens. Consider, for example, the office-building boom of the 1980s, which led to oversupply in many markets because participants couldn’t see the floor as it was approaching. Self-storage development could carry similar risks in 2025, and caution is strongly advised.
Developers create wealth by anticipating opportunities, but trying to time the market is an unwise strategy. It can take two to three years to get a self-storage project from concept to the first unit rental, and success can’t be measured until after it’s complete. Even then, financial performance is very site-specific, impacted by market factors including land prices, construction costs, the cost of permanent financing, market rental rates and operating expenses.
You may see new self-storage facilities going up in your market, but it’s hard to know if they’re actually penciling out. While a developer might achieve cash flow to support a project, it’s difficult to assess how successful it truly is for its stakeholders.
2025 Market Predictions
After watching self-storage rental rates drop in 2024, we expect modest growth this year. Most markets should see increases in the 2% to 3% range as economic conditions and consumer confidence improve. However, operators who offer extremely low move-in rates for new customers make it extremely difficult to determine the most effective pricing structure.
New construction will continue to slow this year due to higher interest rates, longer entitlement timelines, lower rental rates and sticky, elevated construction costs. Many planned and proposed self-storage projects will be delayed until developers and lenders have more clarity on market fundamentals. However, the pipeline is primed and ready to go once market conditions improve and interest rates ease.
A key factor in self-storage development viability is the cost of debt, which is extremely difficult to determine in today’s financial market. (Of course, it’s simpler for cash buyers and real estate investment trusts that treat their cost of funds as the dividend paid to shareholders.) Even with the Federal Reserve lowering interest rates, the yield on the 10-year Treasury continues to rise, as seen in residential mortgage rates. Until developers gain more clarity on the commercial mortgage outlook, many may choose to wait on the sidelines.
Given the known factors in today’s self-storage market, we believe 2025 is a good year to search for a location for your next self-storage facility. Evaluate sites and secure permits and approvals. Just don’t lock in your financing.
If possible, work with a patient landowner who’s willing to hold off on a sale for 12 to 14 months while you obtain the necessary authorizations without a hard commitment. This kind of request would have been more feasible in the past, but it may be possible to demonstrate your earnestness with minimal funds up front, then wait until you’ve secured equity and financing to fully execute.
By planning carefully and hedging against financing uncertainties, you can use 2025 to lay the foundation for your self-storage development success.
Hank Saipe owns 303 Self Storage, with five locations in Denver. He began his commercial real estate career in 1981 as a broker, focusing on finding sites for Public Storage Inc. and other developers. Over the course of his career, he gained experience in site selection, financing and third-party management. To reach him, call 303.888.1260 or email [email protected].
Ben Vestal is president of Argus Self Storage Advisors, a national network of real estate brokers who specialize in self-storage. The company provides brokerage, consulting and marketing services to buyers and sellers via an extensive marketing platform. Property listings and informational resources can be found at the company website. For more information, call 800.55.STORE; email [email protected].
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