Over the last two decades, the self-storage sector has seen expansive growth. This growth was further accelerated immediately following the COVID-19 pandemic, due in part to relocation and work-from-home trends. As a result, sector prices appreciated by 65% compared to 2019 levels*, with occupancy at record highs of 95%* nationwide.
Despite some modest cap rate expansion, NOI growth remains strong across the sector. According to the latest quarterly update, self-storage posted “stronger-than-expected*” rent growth in the second quarter of 2022, leading Green Street Advisors to push up their NOI forecast to 17% annually, which is expected to outpace 2021 levels.
*Green Street Advisors - Self-Storage Sector Update: More of the Same
The Self Storage space is institutionalizing as the major storage REITs, including Extra Space, Cube Smart, Public Storage, and Life Storage, acquire properties, upgrade, and consolidate this fragmented asset class. Older self-storage facilities often lack amenities such as climate control, security systems, etc., creating further opportunities for the development of self-storage units.
Self-storage can help mitigate the effects of inflation, typically due to the owner’s ability to change rents month-to-month or annually. The nature of tenants is also sticky, meaning most keep their belongings in for over a year after they store them. Developing these assets is also relatively simple as compared to other major assets like multifamily or industrial. All told, self-storage ranks high, alongside industrial, as one of the more attractive investments of all property types, especially over the past two years.
Green Street expects a downtick in new deliveries in 2022 until 2024 due to labor shortages and supply chain issues; however, construction deliveries are expected to climb in 2025 and beyond, given the strong fundamentals in the sector**.
**Green Street Advisors - U.S. Self-Storage Outlook, 2022
We believe the increasing need for self-storage due to migratory trends and a continuation of remote work will likely create more opportunities in 2023. We have recently updated our Investment Thesis, including our outlook for self-storage. To read more about the opportunities and outlook in each sector, please access our investment thesis here.
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