BY FRANK DESALVO AND DAVID PERLLESHI

uring the last recession, self-storage was considered a shining beacon of opportunity for both owners and investors alike—an asset class that was touted as “recession-proof” due to a promise of steady, stable growth. The scramble by REITs and institutional investors to get in on a piece of that action has impacted an industry once dominated by small-business, mom-and-pop owners.

Today, approximately 40 percent of self-storage facilities are owned by institutional investors, compared to 10 percent to 20 percent just 10 years ago, leaving just 60 percent owned by small, private entities. The result is a tighter, more challenging market cycle for self-storage assets. Further, high interest rates and elevated (and climbing) material costs continue to hamper the construction industry, constricting housing starts and limiting self-storage new construction–primarily due to an overbuilt landscape with flat occupancy rates as fewer consumers are changing ZIP codes.

However, many of the attributes that initially enticed investors to self-storage continue to moderate the asset class today. What still holds true is that in large part the stability of self-storage is not as tied to job growth or income growth as is the case with other commercial asset classes. In fact, self-storage operating incomes tend to repeatedly outperform office, multifamily, retail, and other commercial types–regardless of the economic climate.

So, what’s in store for 2026? Pundits are predicting that while a full-fledged recession may not be on the horizon this year, economic growth is likely to be slowed primarily due to continue elevated inflation equipping only the wealthiest Americans (not the primary target audience for self-storage) with the confidence to spend with minimal hesitation.

If 2025 was a reset for the self-storage industry, 2026 is likely to prove that the asset class, while not necessarily recession-proof, certainly has the potential to be recession-resistant and particularly profitable for savvy and well-informed investors with capital. Opportunities, or hidden gems, still exist to invest in self-storage with profitable returns.

With many primary markets—and even larger secondary markets—flooded with self-storage facilities, oversaturated landscapes are aplenty, as are potential pitfalls for active investors. If a market has more than seven or eight square feet per capita of self-storage, consider it oversupplied with very few exceptions.

Oversaturation is common in primary markets, as well as regions where residential growth boomed five to 10 years ago, many stalling due to the COVID-19 pandemic followed by labor shortages and increased construction costs. At the time, self-storage operators were quick to enter these markets, readying for a residential surge. As the housing market constricted, these facilities were already open and operating with limited demand, creating an oversaturated market.

Oversaturated markets challenge the growth of operating incomes and, subsequently, profits of self-storage facilities. Why? Oversaturation makes increasing occupancy rates quite challenging for new or existing facilities, consequently limiting property values. With rental rates compressed, new players entering oversaturated or mature markets will find it difficult to gain a toehold amongst well-established competitors. These market leaders have more flexibility to keep rental rates low or offer new-tenant promotions that cut into profits.

When considering new market entry, research existing self-storage operations to determine current rates along with offered discounts and promotions. If rates are low and concessions are high, it’s a market with more self-storage facilities than it can support—an oversaturated market.

The bottom line: Evaluate primary and high-growth secondary markets with a keen investment eye, as most are oversaturated with self-storage facilities and, therefore, offer limited lucrative investment opportunities.

Just as important as oversaturation is how difficult it is for a new project to be built in a trade area or municipality–how high or low are the barriers to entry? For instance, a market that experienced high growth in the early 2000s is now likely governed by zoning restrictions that challenge the construction of new self-storage facilities. After all, self-storage is not a job-creating asset and isn’t always the type of business for which a residential community clamors.

Take Atlanta: High-profile communities such as Buckhead or Midtown Atlanta present high barriers to entry. More involved municipalities, stringent zoning codes, and higher land costs create an onerous environment for a self-storage developer to obtain the necessary construction permits, let alone pencil a viable proforma. However, suburban markets northeast of the city or tertiary markets experiencing new growth and development are typically more amenable to a self-storage build.

Also, beyond the Capital of the South, development opportunities exist in markets such as Chattanooga, Tenn; Knoxville, Tenn.; and their surrounding submarkets, as well as zones outside the Sun Belt, including Tampa and Orlando, Fla. Municipalities in markets experiencing new commercial and residential growth such as these are eager to invite businesses in an effort to build their infrastructures.

However, communities with low barriers are magnets for investors and developers. Therefore, they are prime for oversaturation given the expedited rate to market for the self-storage product and the desire to be operating as residential product comes online. This is the case in certain high-growth areas within the Sun Belt.

The bottom line: The more established a market is, the more stringent municipalities are about future self-storage growth. Seek emerging markets more amenable to establishing infrastructures, but do it quickly before too many investors ascend.

Secondary and tertiary markets are ripe for self-storage investment and development. Typically, these areas aren’t as influenced by or subjected to inflated prices, rigorous competition, or economic volatility.

Secondary markets with close proximity to a major metropolitan area and a population of two million to five million are prime candidates for oversaturation, especially if self-storage development is already underway. However, tertiary markets an hour or more from a major city with populations less than two million, feature less population density and fewer, if any, institutional players.

A lower self-storage square footage per capita means less competition for self-storage renters. And those existing self-storage facilities are likely locally owned, “old-school” operations, creating an immediate need for (and attraction to) shiny new facility with state-of-the-art technology. Likewise, residents of these communities also benefit from a lower cost of living and are flush with more disposable income to fulfill a storage need.

The lack of oversupply and competition allows self-storage operators to set peak rental rates as high as the market will bear. Self-storage operations in these markets offer stable, steady revenue with lower operating costs due to less demand for modern features and amenities. However, these markets contend with lower household incomes and less job security, driving less opportunity for rent growth and value appreciation. Ultimately, at the time of sale, those assets contend with a limited buyer pool of individuals or mom-and-pop operators instead of institutional capital or private equity.

The secondary markets that offer promising self-storage investment opportunities are currently not in the top 25 or even 50 MSAs. For instance, markets such as Raleigh, N.C.; Wilmington, N.C.; Asheville, N.C.; Chattanooga, Tenn.; Knoxville, Tenn.; and Greenville, S.C., are contenders for the next wave of self-storage development. For promising tertiary markets, rural areas or exurbs with steady employment hubs, such as large manufacturers or data centers, are also high-potential targets.

The bottom line: Secondary and tertiary markets are better options than primary markets for new self-storage facilities.

In many cases, the best hidden-gem investment opportunities are existing self-storage facilities that need a little (or a lot of) TLC.

These properties are often independently-owned–often times by absentee owners–and under the same dated or stale ownership and management for many years. Typically, these assets benefit from a stable tenant base that drives steady revenue, resulting in owners lacking motivation for upgrades or improvements. Many times, rental rates are intentionally stalled below market rate in order to maintain higher occupancy levels.

In these cases, acquiring under-managed or under-optimized properties with a strategic plan for capital improvements is an opportunity for increased profitability and value-build. How do you spot a neglected property?

• Outdated or nonexistent digital presence (i.e. website, social media channels, etc.)
• Rents below market value, even with minimal competition
• Absence of (or dysfunctional) technology
• Lack of security (i.e. cameras, gated access, etc.)
• Unanswered telephones
• Poor maintenance and lack of curb appeal

However, defining a capital improvements plan prior to acquiring the self-storage asset ensures value-add success. Consider maintenance and upgrade projects both large and small, such as expansion or an automated digital entry system or fresh paint or upgraded lighting. Think beyond existing self-storage walls to identify new revenue streams, like renter insurance or moving services. Payroll costs can also be reduced with automation, such as online applications, video surveillance, and a remote call center.

With a plan in-hand, due diligence is key. Will the capital improvement costs be offset by expected revenue? Will the market bare the increased rental rates reflective of an improved facility? Will competitive headwinds thwart efforts to increase rates?

The bottom line: Comprehensive knowledge not only of the asset but also of the market and potential economic shifts and influencers are key to investing success.

Recent economic shifts have affected realistic hold times for self-storage investors. The early 2020s were celebrated as self-storage assets appreciated at a record rate, with many investors divesting less than five years following acquisition or opening—and some as quickly as one to two years.

Gone are those glory days, yet profitability is still possible—eventually. The most realistic investment scenario is based on a capital raise with a seven-year horizon, particularly for new development. Although some high-growth markets could support a five-year exit, most new facilities require a longer timeframe to stabilize in order to meet proforma. For value-add acquisitions, seven years allows sufficient time to deploy upgrades and improvements that attract new tenants and renewals at higher rental rates.

Also, seven years allows investors time to weather the current economic climate. For properties purchased or built in 2026, a realistic divesting timeline extends to 2033 when (optimistically) a more stable market will exist.

The bottom line: A realistic investment horizon is seven years to allow time for stabilization, value appreciation, and a healthy return on investment.

Today, a buyers’ market exists for most self-storage assets. However, with a smaller buyer pool than in recent history, deals are traded based on current conditions rather than on opportunistic, value-add projections—with no shifts expected soon. Until a decline in interest rates and inflation spur movement in home buying and selling, operating income is expected to remain static—ultimately compressing property values in the short term.

It remains to be seen whether self-storage will ever return to its “recession-proof” classification. However, investors that identify well-defined and well-vetted opportunities ensure that the self-storage asset class remains resilient and profitable—and “recession-resistant.”