Heading into the second half of 2026, trends in the self-storage investment market are creating opportunities for investors with the right investment strategy, but we are also seeing many groups on the sidelines due to cost of capital or investment expectations that are unachievable in today’s market. The self-storage investment market is clearly showing signs of a K-Shaped recovery, with major market deals commanding premiums while secondary and tertiary market investment opportunities are showing soft pricing fundamentals. The self-storage industry continues to find itself navigating two converging headwinds: an active development pipeline and continued flat or muted operating fundamentals. Over the last six months, we have seen interest rates remain flat, with the ten-year Treasury hovering around 4.5%. While I would agree that many elements of the economy appear to be stable and growing, the confidence of entrepreneurial self-storage investors seems to be wavering with new supply hitting the market, overall lower occupancies, and slower rental rate growth. As a result, many entrepreneurial investors are being more conservative with underwriting self-storage investments today. On the other hand, “core” or major market assets are still demanding high valuations due to the continued influx of institutional capital and self-storage REITs seeing value in hard-to-replace assets. If you are like me, many of the current market signs don’t seem to fit into a neat package. This makes the remainder of 2026 difficult to predict. However, if you will indulge me, I will give you two thoughts on the current self-storage real estate market that will hopefully provide some perspective and possibly uncover some opportunities for you to consider as we head into the second half of 2026.
Not Everyone’s Investment Expectations are the Same:
When valuing a self-storage property today, understanding who the buyer pool is for each asset is critical to making sure you price the property correctly. Over the last two to three years, we have seen the terms of self-storage loans meaningfully change. Many lenders have scaled back their aggressive underwriting, while interest rates have increased. This has led to lower loan proceeds and higher cost of debt for entrepreneurial investors. While industry veterans still feel today’s loan terms (5.75%-6.75%, 65% LTV, 25/30 yr. am) are reasonable, the increase in debt cost has meaningfully affected the value of “non-core,” secondary, and tertiary market properties. As a result, many owners/sellers are frustrated that they can’t sell their secondary market, non-core asset for the low cap rates that they read about in the press releases for major market deals. The spread in cap rates between major market deals and the rest of the market is as wide as it has been in years. Today we see opportunities to buy non-core secondary and tertiary market properties in the 7% to 8.5% cap rate range. This puts buyers of these properties in a positive leverage position and in many cases the per square foot cost is well below replacement cost.
On the flip side, core major market deals are commanding a premium, with cap rates in the high 4’s to mid 5’s for hard-to-replace quality assets. The institutional buyer pool today is as large as it has ever been in self-storage. The 25-75 institutional buyers that are active today have either very low-cost institutional debt facilities or an all-equity strategy that gives them a tremendous advantage. With very long investment horizons, today’s institutional buyers are finding value in buying core major market deals at or below replacement cost, with very low to nonexistent going-in yields. While currently these institutional buyers are highly focused on core major market deals and are reluctant to buy deals outside of the top 25 MSAs, I am confident that over the next several years we will see them broaden their criteria and expand to the top 50-100 MSAs as the overall self-storage market recovers.
The Investment Market for Self-Storage Properties:
The current volatile economy has had an impact on the marketability of all self-storage properties. With investors seeking durability and a diamond in the rough, the buyer pool has never been more sophisticated, detail focused, and astute to market conditions, than they are today. The changes in the financing markets, flat operating fundamentals, and an increase in investment returns from other alternative investments have put downward pressure on all self-storage valuations. Prices of self-storage properties (per dollar of NOI and per SF) hit an absolute all-time high in 2021-2023. Buyers then enjoyed very low interest rates, high loan dollars, aggressively increasing rents, and they would accept the validity of just about any projection. The market of 2026 has seemed to find equilibrium at a level that is 10%-20% below the historic highs.
The current market equilibrium may not prove to be very durable for the longer term for several reasons. For example, if the financing market becomes either less liquid or more expensive, the prices for self-storage properties will soften. Additionally, an active development pipeline that seems to be real and backed by well-capitalized developers eager to build their portfolios will also impact values. It is clear that we are at an impasse in the self storage investment market with investors small and large divided on the industry’s path forward. We continue to enjoy a very liquid and fluid debt market and a very deep but disciplined buyer pool. So, if you are planning to sell in the not-too-distant future, you may want to give some thought to accelerating the process to capitalize on the current market’s liquidity and equilibrium. Remember, it is hard to go broke taking a profit!
Author:
Ben Vestal
Argus Self Storage Advisors
