Following the record-breaking performance of the self-storage sector coming out of COVID-19, and the unprecedented transaction volume seen during 2021 and 2022, self storage stakeholders have been asking the question: what is next for self-storage? Will heightened investor demand for self-storage continues to fuel the sector’s capital markets? And was the operational performance we saw during the past two calendar years just a flash in the pan, or is it the new normal?
Funds raised for self-storage are at an all-time high, both from private capital and institutional sources. Yet for the past nine months, self storage buyers and sellers have been fighting a two-front battle. One, this winter’s post-COVID return to traditional leasing seasonality inspired doubts as to whether occupancies and rental rates would revert from the peak seen in summer of 2022. Two, inflationary pressures have created significant inefficiency in the financing markets and driven up the cost of debt.
Fortunately, the market has received meaningful clarity on both these issues over the past four weeks, and as we head toward the end of Q2 2023, the outlook for the self-storage sector looks healthy.
Operational performance across the largest storage owners during the months of April and May has quelled fears that rents and occupancies may move meaningfully to the negative. Public Storage’s Q1 2023 data reported an average in-place rental income per occupied square foot of $22.65, which is higher than it has ever been, and 38% higher than peak rents pre-COVID. Anecdotal performance during the months of April and May has been very strong as well, with rental rates on the rise across virtually all markets.
As for debt, economists’ general consensus is the Fed funds rate has reached or is very near its peak based on Jerome Powell’s most recent Fed meeting statements. The 10-year treasury has stabilized in the mid-to-high 3% range, and significant efficiency has returned to the financing markets, particularly for cash-flowing deals.
Thanks to all these things, the bid-ask gap between self-storage buyers and sellers is closing day-by-day, and we expect a meaningful uptick in transaction volume during the third and fourth quarters of this year.
JLL’s National Self-storage Team is wholly focused on self-storage sales, financing, and equity placement.
Contact:
Adam Roossien
Director
JLL National Self-storage Team
adam.roossien@jll.com
(214) 695-7209
