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  • Krone Weidler

Self-Storage Rent Growth Slows While Net Absorption Remains Robust

The self-storage sector has been on a tear in recent years, with strong rent growth and steady demand fueling healthy property fundamentals. However, new data suggests that rent growth may be starting to moderate even as absorption remains elevated.

According to data from Yardi Matrix, rent growth across the top 50 metros for 7,500+ SF MOBs slowed to 2.1% year-over-year as of Q1 2024. This represents a deceleration from the 2.3% growth recorded a year earlier in Q1 2023 and the 2.5%+ increases seen in 2021-2022 as the market rebounded from the pandemic.

While decelerating rent growth may raise some eyebrows, it's important to note that absorption, as measured by the change in occupied square footage, continues to be very strong. Net absorption actually accelerated slightly from 2.1% in Q1 2023 to 2.5% in the latest quarter. This indicates that demand for self-storage space remains robust and that properties are still filling up quickly, even if operators have slightly less pricing power than before.

Several factors are likely contributing to this dynamic:

  1. New supply is finally catching up to demand after years of undersupply, putting a bit more competitive pressure on rents, especially in markets that have seen a lot of development.

  2. Record rent growth in recent years has pushed asking rates to new highs, making it harder to implement further large hikes on top of an elevated base. Rent growth is normalizing after an exceptionally strong run.

  3. Persistent inflation in the broader economy may be causing some consumers to pare back discretionary spending on items they would typically store, lessening the urgency to rent a unit at any price.

  4. A slower housing market has reduced the number of people moving, a key driver of storage demand. With fewer people in transition, there may be less immediate need for storage.

Nonetheless, the overall picture for the self-storage sector remains healthy. Demand continues to outpace supply in most markets, and absorption is still very strong by historical standards. While rent growth may moderate further to a more sustainable pace, the sector's fundamental outlook remains positive.

Investors are taking notice, with self-storage sales activity picking up and cap rates compressing. While higher borrowing costs may weigh on overall transaction volume in the near term, the sector's strong property-level performance should continue to attract capital over the long run.

Source: Revista 2024

Krone Weidler, Founder & Principal

Cadre Healthcare Realty Advisors

1095 SE 177th Place, Suite 404-M14

Summerfield, FL 34491

C: (813) 842-2365

O: (866) 355-3594

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