eal estate tends to be a sound investment. The decision makes even more financial sense when we’re talking about a commercial space that’s in high demand, and self-storage facilities have proven over and over again to make investors and owners laugh all the way to the bank. But what happens when all of a sudden, you start noticing the disconcerting trend of a wide gap between the sellers’ asking prices and the amounts that potential buyers are willing to pay?
“I think it’s directly related to the cost of capital, which is significantly higher than it was prior to and during the pandemic,” says Shawn Hill, principal and co-founder of The BSC Group. “All commercial real estate, including storage, has gotten more expensive to build, given inflationary pressures on the cost of building supplies and labor. In addition, the cost of financing has escalated to a point where negative leverage persists in the market, which certainly has a chilling effect on transaction volume.”
However, don’t book a call with your therapist yet. There is still plenty of demand for self-storage. As Hill points out, “Currently, there are headwinds related to rent and occupancy in most sub-markets, but the demand for the product type among both lenders and investors remains robust.” Hill explains that even in places where rental rates trend downward as the top operators compete to maintain occupancy, cap rates remain strong, given the overwhelming demand for storage among lenders and investors.
In fact, he believes that the rental rates will eventually pick back up precisely because there has been such a slow down in the development of projects. “They’ve slowed down because it’s harder to pencil them when faced with increased costs of everything from supplies to debt,” says Hill. “But ironically, this slowdown should eventually help alleviate the rent and occupancy headwinds, which should be favorable to the market.”
And it seems like good news is already starting. “Our Google Analytics says that the searches are more in line with pre-pandemic levels, despite being down meaningfully in the last few years,” says Ben Vestal, president of Argus Self-Storage Advisors, who explains that what caused those all-time high numbers had to do with the totality of circumstances at the time. “During the pandemic, there were also low interest rates and a very aggressive lending environment that created the perfect storm. Capital markets were very fluid and there was a lot of cheap money in the market.”
Then we entered the post-pandemic era; although market conditions have changed so much, Vestal is still optimistic about the industry. “Most facilities are holding onto their value,” he says. “The ones that started in ‘21 or ‘22 may not be reaching their lease-up projections, but overall, stabilized self-storage is still a very desirable investment; and it’s been looking better during the first quarter of 2025. The overcorrection and the stagnation in the housing market have been an issue, but these past few months were more in line with 2018 and 2019 numbers. Think about it. People still need to move to a bigger home if they’re growing their family, even if that means moving farther out. Life events still happen (death, divorce, dislocation, and downsizing), and even after a slow down, they pick back up again. I think we’re past the bottom, to be honest with you.”
For his part, Vestal says that maintaining the physical plant is critical. “Make sure everything is in good working order. Clean, safe, and friendly is what rents units. I also think that owners really need to adopt some form of revenue management. Dynamic pricing is driving revenue more now than in the past, but they need to not only manage street rates, but existing customer rental rates as well.”
Yet, he also cautions about setting unrealistic expectations. “It’s important to set them based on fundamentals,” says Swerdlin. “How’s the housing market in the area? What’s the employment rate? These aspects are also going to influence the demand in those facilities. The more realistic you are, the more likely you are going to set the right price. And if multiple buyers are interested, that’s great! We’ve sold facilities that were 30 to 40 percent occupied, and they still sold well, but they were in excellent markets. You have to take all relevant factors into account.”
Vestal agrees that sometimes sellers can be a little too overconfident when deciding on a listing price. “Sellers’ expectations are probably too high today. Buyers are getting more aggressive. They have better information than they’ve ever had before, and sellers need to realize that the value of their facilities may not be exclusively tied to how well they’re doing, but also on market sentiment and capital markets.”
Swerdlin echoes that opinion. “Nothing is more critical than the underlying consumer sentiment in the market where the deal is located,” he says. “At the end of the day, it’s a consumer business. If consumers are feeling good about their economic situation, it’ll be better for self-storage.”
When asked about whether certain self-storage facilities are currently performing better than others when it comes to holding on to their real estate value, Vestal is quick to answer. “Drive-up storage is still king, but I do think in certain submarkets, multistory, climate-controlled facilities do really well; but they need to be in more affluent areas. It really is submarket driven, but all self-storage is doing OK.”
His message drives home the point that everyone in the industry has known since discovering this oh-so-surprising secret: Self-storage may not sound like a sexy endeavor when it first appears on your radar, but it keeps performing well through fluctuations in the economy. It’s the reason why even though a fair share of colleagues in the industry have landed here by accident, they have very willingly decided to stay. “We’re still lucky to have fairly high demand, despite everything that happens,” says Vestal. “There’s still plenty of opportunity in the storage space.”