ew real estate sectors have experienced the highs and lows of the self-storage sector over the past five years. Riding a wave of post-COVID demand tailwinds, including migration trends and a spike in remote work, the self-storage industry achieved record levels of NOI growth in 2021 as institutional capital raced to gain exposure to the historically defensive sector. The years that followed saw a swift correction in pricing and fundamentals as a wave of new supply entered the market and the backdrop of elevated interest rates stifled both the home sales market and self-storage capital markets.
Turning to 2026, owners, operators, and developers remain optimistic that a swift V-shaped recovery in sector fundamentals lies ahead. However, Green Street’s 2026 outlook, supported by historical data and commentary from the sector’s leading operators, forecasts self-storage will continue to stabilize in 2026. A more gradual path toward normalized fundamentals in the years ahead will hinge on the return of the U.S. home sales market. This gradual recovery is expected to vary by market, as larger coastal markets are expected to outperform most Sun Belt and Midwestern markets. Market selection and a renewed emphasis on operational discipline will be essential to capitalize on the gradual self-storage recovery in 2026 and beyond.
In 2026, the sector appears close to returning to more positive levels of rent and net operating income growth. The speed of the recovery will likely be market dependent, dictated by near-term population growth trends, the recovery of the home sales market, and the size of market-level supply pipelines. Green Street expects self-storage net operating income to grow slightly (approximately 0.7 percent) in 2026, with a return toward more inflationary levels of growth (approximately 3.3 percent) in 2028. As a result, operator rent growth expectations should be recalibrated downward from recent peaks, as self-storage continues to stabilize following the rapid institutionalization of the sector.
Over the past two decades, mortgage rates have strongly correlated with periods of depressed home sales activity and continue to be a key catalyst today. Following the Fed’s aggressive interest rate hike cycle, average 30-year fixed mortgage rates more than doubled over the past three years, peaking at approximately 7.8 percent in October 2023. While 30-year fixed mortgage rates have gradually softened to approximately 6 percent, home values remain sticky and unaffordable to most Americans relative to pre-pandemic levels. In the absence of substantial residential development initiatives, a moderation in interest rates and thus a mean reversion in home sales activity is likely a requirement for a full recovery in self-storage fundamentals.
However, this slightly positive outlook for 2026 demand and occupancy is underpinned by the assumption that pent-up home-buying activity will begin to return. If home sales fail to meaningfully materialize in 2026, this outlook will likely prove to be too optimistic. From an investment standpoint, underwriting assumptions around occupancy and rent growth in 2026 should reflect this cautiously positive outlook. Deals predicting a rapid rebound in rent growth or occupancy in 2026 are vulnerable to disappointment, particularly as market-level pricing is expected to vary widely.
For example, markets with elevated new supply, particularly in parts of the Sun Belt, have been slower to rebound and even continue to struggle with negative move-in rate growth. By contrast, supply-constrained coastal markets with high barriers to entry have already demonstrated a positive turn in move-in rate and overall revenue growth. An analysis of Public Storage’s third-quarter earnings supports this thesis, as the REIT’s highest-performing markets by same-store revenue growth consisted primarily of coastal markets (i.e., Tampa-St. Petersburg, San Diego, D.C. Metro, San Francisco, and Seattle) with mostly moderate supply growth expectations over the near term. Conversely, Public Storage’s lowest-performing markets consisted primarily of Sun Belt markets (i.e., Atlanta, Charlotte, Phoenix, and Orlando).
Green Street expects supply-constrained coastal markets to outperform Sun Belt and Midwest markets in 2026 and beyond, recommending investors overweight Los Angeles and New York markets and underweight Jacksonville. However, targeting these markets alone won’t guarantee outperformance. Operators looking to invest in a given market will need to have a good grasp of the size and depth of the supply pipeline within their targeted market, and more specifically at the submarket level. New entrants within a market without the backing of an experienced operating platform or a firm understanding of the competitive landscape will be more at risk of investing in an oversupplied corridor, resulting in prolonged pressure on net operating income until demand catches up with recent development.
Since then, large portfolio trades have been limited despite strong, continued institutional investor interest in the sector. This limited deal flow has resulted in minimal price discovery for self-storage as bid-ask spreads remain wide. However, nominal cap rates have expanded significantly since the 2022 peak, as current sector cap rates sit at approximately 5.4 percent, approximately 30 bps above 2019 levels. Investors continue to view self-storage as a defensive asset class with attractive cash flow characteristics, particularly as pension funds, private equity, and other institutional capital seek to diversify away from underperforming traditional property types such as office.
Transaction activity in 2026 is likely to remain below peak levels, constrained by elevated borrowing costs and persistent bid-ask spreads. Sellers anchored to prior valuations may struggle to transact, while buyers are underwriting to more conservative exit assumptions. Over time, this tension should ease as pricing expectations reset, but today self-storage appears slightly expensive relative to other property types. Green Street’s current self-storage sector level return expectations are approximately 7.0 percent, which sits approximately 40 bps below the U.S. weighted average for all real estate sectors. Operators looking to enter the sector in 2026 should be aware that they may be paying a premium for self-storage, which is forecasted to deliver below-average risk-adjusted returns relative to other property sectors.
For investors still looking to invest in the sector, success will likely depend on macro trends, such as the thawing home sales market, and on executing well at the asset and market level. Green Street currently recommends overweighting Los Angeles and New York, as coastal markets are expected to outperform over the near term. Sun Belt markets are expected to lag as they continue to work through large development pipelines, highlighted by Green Street’s underweight on the Jacksonville market. For stakeholders willing to adjust expectations, sharpen underwriting, and focus on market fundamentals and supply pipelines, the coming year offers a clearer and more optimistic path forward. The next phase of self-storage growth is unlikely to be explosive, but it may still prove just as durable as years past.