By Nick Luettke and Dan Quan

merica’s self-storage market has a deep relationship with multifamily development, migration patterns, and household formation trends. While most sectors across commercial real estate (CRE) have a symbiotic relationship contributing to ever changing space demands, few relationships are as direct as multifamily and self-storage. Population growth, employment, and household formation drivers help inform performance in the housing market leading to downstream adjustments in the self-storage space. We’ve analyzed the relationship between self-storage and multifamily markets at the metro, regional, and national levels to evaluate common trends started before the pandemic and spurred forward during.

The self-storage market, made up of climate-controlled and non-climate-controlled units, has witnessed the greatest expansion in metros also featuring the most multifamily housing growth, and many key macroeconomic indicators are simultaneously driving expansion and issues within the new construction space for both sectors. Both markets have performed well since the pandemic, but both observed vacancy increases in 2023, as multifamily rose by 50 basis points to end at a 5.4 percent national vacancy rate, while self-storage rose by 80 basis points to end at 12.6 percent. However, vacancy rates only tell parts of the story, as both sectors have undergone significant periods of inventory expansion in the last decade.

See Chart 1: Regional Inventory Growth (Source: Moody’s Analytics)

Construction across CRE has had an awkward but decent year as uncertainty lingered throughout 2023. A number of counter-acting factors have played a significant role in recent construction for both multifamily and self-storage. While the two underwent inventory expansion peaks at slightly different times after the great recession, today both markets are impacted by some of the same positive and negative macroeconomic developments in year-on-year construction.

On the optimistic end, fears of a recession have eased in recent months as greater expectations of a soft landing have increased. A variety of factors have led to that attitude shift, but a prominent metric is the healthy employment figures that continue to roll in as the nation sits at a moderately low 3.7 percent unemployment rate while wages have continued to grow. Anxiety over whether office sector struggles would spill over into other CRE sectors has been countered with fairly strong macroeconomic performance, as highlighted by performance in self-storage and multifamily housing spaces.

On the pessimistic end, costs have continued to rise in construction as the market is hit by both financing challenges and a strong labor market. The strong labor market has driven up wages and created significant challenges for the construction market in multifamily and self-storage. In many cases, elevated construction costs threaten to cut into margins, if labor is available at all. Conversely, the same labor market strength has also kept up demand for housing markets and therefore self-storage downstream. Household formation is strongest with higher employment and wages, and the ability for a greater number of Americans to rent or buy living spaces impacts demand of self-storage.

Self-storage and multifamily both observed minor completion slowdowns in 2023, though neither saw construction slowdowns to the level of the troubled office sector. Multifamily completed 212,484 new units, substantial and in line with recent years, but still the lowest of any year since 2014, while self-storage added 111,219 new units, also the lowest since 2014 in the sector. Financing challenges pose little upside for development and harder to overcome obstacles for both new construction and transactions of existing developments. The notion of higher for longer has continued to extend as health of the broader economy persists, presenting obstacles for those looking to finance projects and deals. On the CRE performance side of things, higher interest rates make financing a deal tougher given the need for elevated returns. Consumers are also impacted by higher rates, particularly those looking to move from multifamily rentals to single-family ownership.

A point of divergence may occur in the next year or two between self-storage and multifamily markets as the perceived social benefit of housing for voters could play a role. Local governments have been and are likely to continue to address housing affordability issues this election year. Tackling affordability issues could move self-storage markets downstream given spending adjustments, but the most direct impact will be through the location of new construction at the market and submarket level. Given multifamily construction’s greater lead time on development than self-storage, there may be a period of new multifamily construction combined with lower interest rates later in the year leading into next year. How local and state governments move forward addressing multifamily affordability issues should play an important role for self-storage development and performance.

The strong relationship between self-storage and multifamily housing since the start of the pandemic reflects shifting migration trends as highlighted by many Sun Belt markets and their substantial growth in both sectors. The story of self-storage in recent years has largely become a story about pandemic-era growth driving rents up and vacancies down, but self-storage’s nationwide inventory boom fortunately positioned the market to absorb significant levels of pandemic-era business.

The impressive absorption success starting in early 2020 and running through today largely came through fortuitous timing of nationwide inventory growth pre-pandemic. Our contemporary self-storage data covers 125 metros across the United States while our historic data set of 50 of the largest metros provides us a 10-year snapshot. Those 50 metros with greater historic data grew their inventories collectively by 25.1 percent between Q4 2013 and Q4 2023. Remarkably, the nation’s multifamily inventory grew by 23.6 percent during the same 10-year time period. The Multifamily and Self-Storage Vacancy and Growth Chart highlights the tight relationship in inventory growth between the markets, with self-storage benefiting from reduced build times and historically smaller and more agile markets that carry naturally higher vacancy rates.

See Chart 2: 10 Year Inventory Expansion Chart (Source: Moody’s Analytics)

National trends between self-storage and multifamily are emphasized even stronger when we turn toward metro-level analysis. Eight of the nation’s top 10 markets with the greatest growth in self-storage inventory from Q4 2013 to Q4 2019 also observed multifamily growth ahead of the national average. Charlotte, N.C., stands out as a clear, star example of growth in both markets. Charlotte’s self-storage expanded significantly over the last decade with an inventory growth of 71.6 percent, the nation’s largest of the 50 metros Moody’s has tracked for at least a decade. Mirroring the substantial self-storage growth is the metro’s multifamily growth; the multifamily inventory grew by an astounding 70.6 percent in Charlotte, which is the greatest of any of the large, tier-one metros in the nation. Some other prominent Sun Belt metros had similar growth patterns: Orlando grew by 54.0 percent in multifamily while self-storage grew by 50.4 percent; Miami grew by 42.2 percent in multifamily and 47.1 percent in self-storage.

The Sun Belt has experienced significant population growth over the last decade and the southern emphasis on inventory growth reflects the important dynamics of household formation and performance in these sectors. While the pandemic spurred many of these developments on and amplified their impact with significant adjustments in rents, much of the inventory growth in both markets occurred prior to the pandemic. Both sub-sectors within CRE were positioned well to benefit from accelerated spending, lifestyle, and migration patterns.

These useful metro level correlations highlight national trends in construction, but the full story requires some deeper analysis. A few notable points of variation exist within metro-level divergence. The first occurs with New York metros, as self-storage significantly outpaced multifamily housing development. Long Island was the only metro of the top 10 self-storage markets to not have multifamily development above the national average. While the Long Island storage market experienced 45 percent growth in units over the last decade, multifamily only grew by 5.8 percent—the largest gap in inventory growth rates of the 50 metros, as severe shortages of buildable land zoned for multifamily development in Nassau and Suffolk counties has limited new apartment supply.

The New York metro largely reflected Long Island trends, with self-storage growing by 47.6 percent in the last decade yet multifamily growing by just 17.6 percent. New Yorkers pay historically high rates for housing due to limited supply and tight geographic conditions; renters pay about 58 percent of their income on average. Given the size of New York City and surrounding suburbs, the lack of multifamily development is understandable due to space needs but continues to dramatically impact rent-to-income ratios.

The pandemic was not the sole source of self-storage’s success story in recent years, though it played a key role by accelerating pre-existing migration trends while also shifting rental behavior as Americans sought larger and newer apartments. We divide American metros into five geographic regions, and all five regions reflected national trends in development and leasing with generally positive performance. The Southern Atlantic region had the strongest performance across many metrics, an unsurprising result given significant migration patterns. The region benefited from shifting preferences toward greater space and warmer weather; at the same time, America’s aging baby boomer generation has squarely entered retirement age, benefiting both the traditional retirement state of Florida with significant retirement spillover into nearby states. Despite already having significant self-storage inventory space with 2.68 million square feet in inventory at the start of the pandemic, the region observed the second-largest inventory growth rate during the pandemic as construction continued.

See Chart 3: Regional Inventory Growth Chart (Source: Moody’s Analytics)

Only the Northeast, which started the pandemic with 1.23 million square feet, outpaced the South Atlantic’s pandemic inventory growth rate of 7.5 percent, with a staggering inventory expansion of 14.1 percent in the last four years. The Northeast’s substantial inventory growth, while impressive, generally kept up with demand in the region, as occupied stock grew by 15.1 percent as well, leaving a gap of 1.0 percent. While the Northeast region largely kept up with demand through inventory growth, the Sun Belt regions provide a different story. The Southwest and South Atlantic regions saw their occupied stocks climb ahead of their inventory growth by 4.8 percent and 3.3 percent, respectively, indicating a greater ability to absorb surging demand with pre-existing stock to keep vacancy levels in line.

The spark of the pandemic fueled an already expanding self-storage market across the nation. Multifamily housing trends largely reflect migration patterns and economic performance driving household formation, combining with age demographics to drive demand in a market, which in turn drive self-storage demand. Population growth and migration trends influence the sectors most directly by impacting demand, but inflection points like the pandemic also influence demand through behavioral shifts.

The Sun Belt region dominated headlines with population growth and migration patterns throughout the pandemic. Since the start of the pandemic, nine of the top 10 metros with the greatest growth in multifamily occupancy are in the Southern Atlantic region specifically. At the same time, metros across the Sun Belt led occupancy growth in total figures in self-storage as Dallas, Houston, Phoenix, Austin, and Atlanta led the nation in occupied stock growth since the pandemic.

Markets like Phoenix help highlight the underlying importance for demographic metrics in both sectors given the metro’s substantial population growth. Between Q4 2019 and Q4 2023, Phoenix led the nation in total growth of self-storage occupied stock with an increase of 31,562 units, while also seeing its multifamily occupied stock grow by 36,036 units, the third highest in the nation. Through the lens of total occupied stock figures, many of the same larger cities saw both their multifamily stock fill up along with self-storage space. Of the top 10 metros with the greatest total increase in occupied self-storage, all 10 also finished in the top 20 U.S. metros with the greatest expansion in multifamily housing since the pandemic.

Pandemic success stories in large markets like Phoenix, Dallas, or Houston highlight the dual growth in self-storage and multifamily housing in recent years. However, relative figures paint a more nuanced picture where regional mid-major cities saw the greatest expansion of self-storage occupancy, while Florida metros dominated multifamily occupancy growth with lower than expected self-storage demand. Des Moines (37 percent), Albany (33.4 percent), Augusta (28.7 percent), Knoxville (24.7 percent), and Providence (22.8 percent) led the nation with the largest growth in occupied stock between the start of the pandemic until today. For context, many of the nation’s largest metros in terms of total growth in occupied stock grew in the low double-digits. Metros like Phoenix (15.0 percent), Dallas (11.6 percent), Chicago (10.5 percent), and Houston (7.0 percent) are largely driving overall growth in the self-storage market given their size but have more moderated performances when viewed through relative growth. For metros with traditionally smaller inventories, such as Des Moines and Augusta, the pairing of population growth with an influx of modern facilities to meet demand has produced a more dramatic impact than in larger, more mature metros.

America’s self-storage market has become instrumental to the CRE ecosystem as space demands have increased. Multifamily indicators help drive self-storage growth through a combination of migration patterns and macroeconomic success, and many of the nation’s leading self-storage markets are reflecting similar multifamily growth. With the single-family market remaining challenging to financing and labor supply issues, the multifamily market has remained strong and space needs remain elevated. While performance of existing units has increased since the pandemic, construction challenges persist for many of the same positive macroeconomic issues benefiting existing units as development costs remain high. Prominent Sun Belt markets lead the nation in multifamily and self-storage in response to pre-existing migration trends being accelerated by the pandemic, but underneath the surface, some other regions, like the Northeast and Midwest, have closed the performance gap. Looking to the year ahead, the biggest questions impacting both sectors are tied to macroeconomic performance, particularly whether the nation ends up successfully navigating a soft landing or heads into a recession, along with the potential of interest rate cuts. In the face of this macroeconomic uncertainty, the self-storage and multifamily markets have performed well over the last decade and are positioned well to continue finding success given the current state of America’s housing market.