The self-storage sector has experienced a slowdown over the past two years, a direct consequence of the current gridlock in the housing market, coupled with elevated new supply from deliveries since 2021. High interest rates and low housing inventory have kept homeowners in place, reducing the need for extra space. This new reality is a large contrast from the activity noted during 2021-2022, and its effects are ongoing in self-storage facilities nationwide.
Throughout 2021-2022, the housing and self-storage markets recorded strength in their performance. This was fueled by lower interest rates, a need for more space after the pandemic, and a competitive buying market, which caused home sales to increase. The uptick in activity caused robust demand for self-storage as people moved, downsized, or sought temporary solutions for their belongings. Leasing velocity was high and rental rates soared, which led to strong occupancy rates across the sector.
Now, the landscape notes a dramatic shift. The Federal Reserve’s aggressive interest rate hikes in 2022 have significantly cooled the housing market, leading to less housing transactions. Throughout the second quarter of 2025, home sales recorded a decrease compared to prior levels, with 117,000 completed new homes remaining unsold as of April. This metric is significant as it is the highest level of completed unsold homes since July 2009 when 126,000 homes remained on the market.
Not only did the uptick in interest rates affect housing, but it also led to a drop in self-storage demand. So far this year, rental rates declined at a slower pace than in the past two years, but advertised rents are still down nationwide. In April, national rates were down 0.4% year-over-year, noting an average rent per square foot of $16.66. As the leasing season has begun, an uptick in demand is notable, which has caused advertised rents to increase. Yet, rents are ultimately still below levels from 2 to 3 years ago.
Like the national trend, self-storage in the Southeast reported decreased move-ins, but a mixed performance in street rates. Some markets in the Southeast, particularly those with elevated square footage per capita and high levels of new development, continued to experience sharper rate declines. This was particularly evident in Atlanta as it recorded a -15.1% year-over-year decrease in street rates by January 2025, largely due to new supply entering the market and increased competition.
While performance is different across the region, the Southeast recorded an increase in sales volume year-over-year. At the end of Q1 2025, total volume for the region was $389.6 million, a 14.8% year-over-year increase. Individual property volume made up the most amount of transactions at $282.3 million, with private buyers accounting for the most transactions year-to-date.
Operators across the Southeast are employing tactical pricing strategies, including discounts and promotions, to attract new tenants in a price-sensitive environment. While occupancy in the Southeast varies, certain markets in the region experience slight differences based on local supply pipelines and demand drivers. Markets with less new development are likely to maintain higher occupancy, while those with significant new supply might see temporary dips as new facilities lease up.
Whether a consumer is buying a new home or relocating as a renter, their movement in the market is a catalyst for self-storage demand. With fewer people moving, the demand for storage is subdued, and will remain that way until the Fed begins to drop interest rates. Recent earnings calls from top self-storage REITs address the challenging market conditions, indicating strategies to manage revenue in a competitive market, including the need for new tenant rates to be 35-40% lower than existing tenants to sustain historical occupancy levels.
Companies like Public Storage and CubeSmart noted the pressure on street rates and decreases in occupancy levels. At the end of Q1 2025, the companies recorded same-store occupancy at 91.5% and 89.7%, respectively, which are both decreases from the same period last year.
National Storage Affiliates noted a larger drop than both firms at the end of the first quarter with same-store occupancy at 83.6%. This is a 240-basis-point drop from Q1 2024, when the firm recorded same-store occupancy at 85.8%. While these occupancy rates are still stable for each firm, the drops in occupancy further underscore the impact of the broader economic environment and the decrease in demand.
The contrast between the uptick in activity during 2021-2022 and the present environment, marked by declining leasing velocity, softening rates, and challenges to significantly increasing revenue, emphasize the profound influence of residential activity. As long as high interest rates and low inventory keep homeowners rooted, the self-storage sector will likely continue to feel the pinch, eagerly awaiting a resurgence in housing market activity to reignite its primary source of growth.
However, there are recent indicators that the market is beginning to see an uptick in rental activity and a shift in pricing strategies by larger operators, which can present more clarity to developers when making investment decisions. While transaction velocity levels are expected to persist until the Fed cuts rates, the market is on the precipice of these cuts that should spur investment activity, as well as the housing market.
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