Anyone following the self-storage market knows that the past few years has provided many headwinds, from different directions – occupancies slipped, aggressive rental rates took down in-place rents, new supply hammered markets and interest rates made selling a serious challenge.
As we get ready to close out 2025 many of these headwinds have softened, perhaps it’s more of a gentle breeze with supply pipelines falling off, lease-ups seeing improved operating metrics, the REITs softening their aggressive lease-up rental rates and interest rates flattening or even coming down a touch.
Although full recovery is still a pipedream at this point, it all seems possible as there are some signs we are returning to a healthier balance. For now, not having these headwinds can be considered a win. Once the winds shift to tailwinds the market will be off to the races!
CORE MARKET – STABILIZED ASSETS
The current sweet spot for buyers, where the bid-ask spread is generally tightest and offered properties are receiving multiple offers, is owner operated, stabilized assets in core markets with limited new supply pipeline and high barriers to entry. Properties in markets like Los Angeles County, New York metro, San Francisco Bay Area and other similar markets are trading at CAP rates in the high four percent to mid five percent range on in-place net operating income. Recent offers have improved materially over the past few months and deals are starting to make sense to both sides. This shows the self-storage markets resilience and strong interest level from institutional buyers, REIT’s and exchange buyers.
Bid-Ask spreads have narrowed quite a bit and deals are starting to happen, albeit at pricing well below 2022-2023 levels. Sellers with ample equity are making moves while many deals bought or built in the 2021-2023 period are still underwater. Offering ranges have tightened from a dispersion of 20%+ to 10% +/-. This shift means we are seeing multiple offers on deals that struggled to find a single buyer recently, allowing brokers to push buyers to sharpen their pencils in order to win deals.
CERTIFICATE OF OCCUPANCY / PRE-STABILIZED ASSETS
Assets marketed at certificate of occupancy (C of O) or properties still in lease-up are getting much more traction recently as rental rates are finally off the bottom and trending in the right direction. Buyers can confidently project rental rates rising, along with occupancies. The lending environment has improved with more capital sources coming back in and the private lending market exploding with interest. Most borrowers are opting for adjustable rates and shorter terms knowing that the trend line for rates is down.
Most projects completed in 2023-2024 are finally getting to stabilized occupancy and ECRI’s are holding. The combination of improving in-place rents and increasing street/web rates gives buyers more confidence in their underwriting.
Deals are finally getting attention, offers are on the upswing and transaction volume is, and will continue improving going into 2026. Deals facing recapitalization are trading with sponsors seeing some of their equity returned at close. The exception are pockets with excess oversupply (pockets of Las Vegas, Phoenix and Florida markets among others) where rental rates are still struggling to get off the bottom.
TERTIARY MARKETS – SMALL ASSETS
Stabilized facilities in markets with less than 50,000 population within 3-5 miles and limited population growth have seen a nice uptick in activity and buyer interest. The primary driver here is the interest rate environment. With lending programs becoming more creative and borrowing rates below 6% this market is seeing good offer activity once again. Seller financing remains the most attractive source of capital, but in instances where the seller is unwilling, or unable, to provide seller financing the capital markets are once again a reasonable source of financing – banks, credit unions, SBA lenders, are all options today.
To transact the seller will need to price the asset at a CAP rate at or slightly above the borrowing rate – with interest rates dipping below 6% in many cases these smaller market deals are once again moving!
DEVELOPMENT SITES
Development is the last to recover and faces continued heightened scrutiny. Only sites that check all the boxes (limited pipeline, rising rates, growing population, solid household incomes) will get done. LOCATION, LOCATION, LOCATION is a thing again! For a minute coming off the Covid sugar high many developers were desperate to build and elected to build in sub-par locations. This ship has sailed, and fundamentals are back in vogue.
The key to transacting is having the right location. Projects in subpar location just won’t find buyers – oversupplied areas, buried locations, additional new projects in the pipeline, declining populations are all deal killers.
About the author:
Tom de Jong is an Executive Vice President with Colliers International and a founding member of the “de Jong Self Storage Team I COLLIERS” one of the top brokerage teams in the self-storage industry within the US. To discuss this article or to find out what your assets are worth today connect with Tom.
