During every major US recession in the past 25 years, self-storage led all traditional property types in net operating income (NOI) growth recovery. Jennifer Boss, managing director and head of portfolio management at Heitman, said: “Its short lease terms and inelastic demand allow for rapid rent adjustments. Additionally, dislocation occurring during economic downturns, such as downsizing, generates storage demand.”
Self-storage has become one of the most consistent performers, benefiting from low capital expenditure and strong historical NOI growth compared to traditional property types. The ODCE storage index has outperformed the overall private real estate ODCE benchmark every year since the storage sub-index data began in 2013.
Pascal Souvenir, SVP and head of self-storage at Heitman, said: “We believe the self-storage sector is at an inflection point, driven by a meaningful slowdown in new supply and improving fundamentals. Construction starts have fallen, and deliveries are expected to run well below historical norms, while valuations have corrected and seem poised for recovery.”
The ageing of the US population is a favourable tailwind for storage demand. The top end of the US’s largest age cohort, the Millennial generation, is just turning 45 and entering its peak storage usage years.
“With the home affordability crisis, millennials are grappling with constrained home sizes while also raising kids and dealing with ageing Boomer parents,” Souvenir added. “Additionally, adoption of storage continues to increase among younger generations, as consumers are now often introduced to the product in their college years for summer storage. Our model suggests 20% demand growth over the coming years from these factors, compared to 4.8% over the prior 10 years.”
On the supply side of the equation, Souvenir noted that street rents are roughly 50% below the levels needed to support new development. “The result of this imbalance points to a sector that appears poised for recovery, with strong revenue growth now already visible at our stores that have limited levels of new supply in lease-up,” he said. “This is true even in the weakest-performing metro housing markets, where home sale volumes are well off historical norms.”
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