The self-storage sector is experiencing a rare combination of weakening operating fundamentals and strong investment performance, with occupancy falling to a new cyclical low even as returns continue to outpace those of other commercial real estate asset classes.
According to DXD Capital's latest quarterly market report, weighted self-storage REIT occupancy declined to 91.5% in the first quarter, slipping below the 92% threshold long considered the sector's historical average and falling beneath the 92.8% level recorded before the pandemic in late 2019.
The decline suggests the sector has fully relinquished the occupancy gains generated during the pandemic-era housing boom. Yet despite softer demand conditions, DXD reported that self-storage has remained the top-performing CRE asset class it tracks, posting an average quarterly return of 1.91% since 2023.
The report noted that limited home sales activity continues to suppress relocation-driven storage demand, even as the number of homes listed for sale increases. With significantly more sellers than buyers in the market, listings are not translating into the volume of completed transactions typically needed to support stronger move-in activity.
Operators have responded by using more aggressive pricing strategies to attract tenants. DXD found that in-store asking rates fell during the first two months of the year as owners competed for move-ins, while achieved rental rates remained relatively stable due to a base of long-tenured customers.
The report suggests the industry's near-term outlook may depend less on demand growth and more on a sharp pullback in new supply. Development activity is expected to continue to slow, with deliveries projected to decline from 59 million net rentable square feet in 2025 to 51 million this year and to approximately 38 million square feet by 2028. According to DXD, the contraction reflects developer caution amid elevated financing costs and localized oversupply concerns.
That slowdown could ultimately help restore pricing power by allowing existing inventory to be absorbed before another wave of development enters the market.
At the same time, consolidation among the industry's largest operators continues to accelerate. DXD pointed to Public Storage's pending $10.5 billion acquisition of National Storage Affiliates as one of the year's most significant institutional transactions, a move that would further concentrate ownership among the sector's largest players and underscore investor confidence in self-storage's long-term fundamentals despite current occupancy challenges.
The sector's financial health remains notably stronger than many other property types. DXD reported a distress rate of just 0.2% for self-storage properties, compared with 21.2% for office assets and 6% for multifamily properties.
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