Self Storage Industry Sees Rental Rate Recovery as Supply Constraints Create Favorable Market Conditions

The self storage industry is experiencing a significant 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's Q2 2025 Self Storage Report reveals that major REITs including Extra Space and Public Storage are reporting year-over-year growth, signaling a return of pricing power for operators.

Sylvester noted that the return to positive street rate growth across all three major REITs was the biggest surprise in the Q2 numbers. This shift is driven by a combination of stable occupancy levels and a constrained new supply pipeline, creating favorable conditions for existing operators. The lack of new development, caused by tighter lending standards, construction cost inflation, and longer entitlement timelines, has significantly reduced project starts across the industry.

The outlook for rental rates remains positive, with moderate growth expected through the remainder of 2025, particularly in high-barrier markets where supply is limited. Sylvester anticipates stronger upward pressure on rental rates in 2026 if interest rates decline and home transaction volumes increase. Occupancy is expected to remain elevated and stable, with potential for slight increases as new household formations and moving activity pick up next year.

Development constraints continue to impact the market, with many developers sitting on entitled land waiting for debt markets to reopen. The lending market remains the main constraint on new investment, with construction financing difficult to obtain and leverage levels reduced when available. This credit tightening has created a bifurcated investment market where stabilized assets in strong locations trade at compressed yields while lease-up deals and land are being repriced or passed over entirely.

Markets with limited developable land, high regulatory barriers, and wealthy populations continue to be underserved for self storage facilities. The current environment, characterized by constrained development and disciplined discounting practices, is helping REITs maintain occupancy while pushing rents higher. This supply discipline is expected to persist into 2027, creating a major tailwind for existing operators and new developments that can secure capitalization in the current cycle.