Self Storage Industry Shows Signs of Recovery with Return to Positive Rental Growth
TL;DR
DXD Capital's analysis reveals self storage operators can leverage constrained supply and returning pricing power to achieve rental rate growth and outperform in high-barrier markets.
DXD Capital's Q2 2025 report shows self storage street rates returned to positive growth after two years of compression due to stable occupancy and limited new supply.
Constrained self storage development preserves neighborhood character while stable occupancy ensures reliable service for households during economic transitions and moving periods.
Self storage REITs posted positive rental growth for the first time in over two years signaling a market turnaround driven by supply constraints.
Found this article helpful?
Share it with your network and spread the knowledge!
The self storage industry is experiencing a notable shift as rental rates return to positive growth after more than two years of compression, according to Cory Sylvester, Principal at DXD Capital. The company recently released its Self Storage Report for the second quarter of 2025, revealing that major REITs including Extra Space and Public Storage are reporting modest to significant year-over-year increases.
Sylvester identified the return to positive street rate growth across all three major REITs as the most surprising development in Q2 data. This shift suggests that pricing power is returning to the market, driven by a combination of stable occupancy levels and a constrained new supply pipeline. The improvement marks a significant reversal from the prolonged period of rate compression that has characterized the industry in recent years.
The outlook for rental rates appears optimistic, with moderate growth expected to continue through the remainder of 2025, particularly in high-barrier markets where supply is limited. Looking ahead to 2026, Sylvester anticipates stronger upward pressure on rental rates if interest rates begin to decline and home transaction volumes increase. This scenario would allow operators to regain pricing power without sacrificing occupancy levels, creating favorable conditions for revenue growth.
Occupancy rates are expected to remain elevated and stable, supported by the lack of new supply and disciplined discounting practices among REITs. As new household formations and moving activity potentially increase in 2026, occupancy may experience slight upward movement, especially in submarkets with significant pent-up housing demand. This stability provides a solid foundation for the industry's recovery.
Development activity remains severely constrained due to multiple factors including tighter lending standards, construction cost inflation, and extended entitlement timelines. Many developers are holding entitled land while waiting for debt markets to reopen, resulting in a sharp slowdown in new deliveries that is expected to persist into 2027. This supply discipline creates a major tailwind for existing operators and new developments that manage to secure capital.
The investment landscape presents a bifurcated market, with stabilized assets in strong locations continuing to trade at compressed yields while lease-up deals and land acquisitions face repricing or abandonment. The lending market represents the primary constraint on new investment, as many regional and national lenders maintain risk-averse positions or face overexposure to commercial real estate. Construction financing for self storage projects has become particularly difficult to obtain, with reduced leverage levels when available.
Despite these challenges, the scarcity of new development resulting from credit tightening is helping existing assets outperform expectations and setting the stage for strong returns for those able to build or acquire properties in the current cycle. Markets with limited developable land, high regulatory barriers, and wealthy populations continue to represent the most underserved opportunities for self storage development.
Curated from citybiz
