he self-storage sector’s Q4 2023 results and full-year 2024 guidance were in line with expectations. Despite a competitive environment for new customers, the four publicly traded REITs reported positive same-store revenue growth of 0.50 percent (non-weighted) year-over-year in the fourth quarter. Occupancy levels remain strong but have moderated from 2022 to a quarter-end occupancy of 90.2 percent (non-weighted), as the sector returns to a more cyclical operating environment. NOI decreased by 0.25 percent (non-weighted) on a year-over-year basis due to continued upward pressure on non-controllable expenses, including property taxes and property insurance, as well as an increase in marketing spend.

The REITs 2024 guidance and commentary implies that the operating environment will improve as we move through the year, but with a wide range of potential outcomes due to the uncertainty in the macroeconomic environment. Q&A during the REITs earnings calls was dominated by the topic of move-in rents. All four REITs have strong conviction in their respective revenue management strategies. This confidence is illustrated by their -2.06 percent to 0.69 percent range (non-weighted) same-store revenue guidance in 2024, despite expectations that rental demand will remain stable, but move-in rents will persist significantly below current in-place rents. The REIT management teams were consistent with their assertion that existing customers remain healthy, and they are not seeing a change in the acceptance of ECRIs, even though they are experiencing price sensitivity for new customers; and the move-in/in-place rate dichotomy has improved in the first two months of 2024 when compared to the back half of 2023. New customer move-in rents are expected to improve throughout the year on both a nominal dollar amount and a percentage basis.

New supply levels remain a tailwind for the sector, as development continues to be extremely difficult due to the high cost and lack of available funding, lengthy and uncertain entitlement processes, and lower move-in rents. The decline in the percentage of facilities that are affected by new development in 2024, relative to pre-pandemic, combined with the steadily increasing utilization rate of storage, bodes well for revenue growth, move-in rates, and occupancy levels in the near and medium term.

The REIT transaction market saw an uptick in volume in the fourth quarter with acquisitions totaling over $300 million and dispositions totaling $540 million from NSA’s 71-property divestment ($263.2 million closed in Q4 2023). However, balance sheet acquisitions remain several hundred million dollars below historically normal quarterly volume. There remains an abundance of capital prepared to deploy into the sector, both on the public and private sides, and from both debt and equity. However, the limited transaction volume provides little clarity into market pricing, making it difficult for capital to form consensus around return targets, and sellers to get comfortable with cap rate expectations. The fourth quarter transaction and management commentary are indicative of a going-in 6 percent cap rate for stabilized assets; although, as the trajectory of interest rates becomes clearer throughout the next couple of months and capital markets stabilize, the spread between buyer and seller expectations should narrow, resulting in a more robust transaction market in the back half of 2024.

In addition to this quarterly REIT summary, a weekly email from Newmark Group, Inc.’s Self Storage Practice delineates key benchmark rates for the capital markets, near-term expectations for transactions, and interpretive opinions of broader market questions.

The pages of this article summarize the information for the fourth quarter of 2023, reported by the four publicly traded self-storage REITs, along with comparisons between the industry and macro-market benchmarks.