In a recent Q&A, Cory Sylvester, Principal at DXD Capital, shared insights on the state of the self storage industry following the release of the company's Q2 2025 Self Storage Report. Sylvester highlighted the return to positive street rate growth across major REITs as a key surprise, signaling a shift in market dynamics.
According to Sylvester, after more than two years of rate compression, Extra Space posted over 2% year-over-year growth, and Public Storage reported modest increases. This shift suggests that pricing power is returning, driven by stable occupancy and a constrained new supply pipeline. He expects moderate rental rate growth to continue through the remainder of 2025, particularly in high-barrier markets with limited supply. Looking ahead to 2026, if interest rates decline and home transaction volumes increase, stronger upward pressure on rental rates is anticipated without sacrificing occupancy.
Occupancy is expected to remain elevated and stable, thanks to a lack of new supply and disciplined discounting practices. Sylvester noted that as new household formations and moving activity increase in 2026, occupancy may tick up slightly, especially in submarkets with significant pent-up housing demand. He described development as constrained, with tighter lending standards, construction cost inflation, and longer entitlement timelines significantly reducing starts. Many developers are sitting on entitled land waiting for debt markets to reopen, leading to a sharp slowdown in deliveries that will persist into 2027. This supply discipline is a major tailwind for existing operators and new developments that can get capitalized.
When asked about underserved markets, Sylvester pointed to areas with limited developable land, high regulatory barriers, and wealthy populations. He also identified challenges impacting self storage development, such as constrained existing home sales due to rapid increases in mortgage rates over the last 24 months. Higher interest rates have reduced housing affordability, hampering population mobility, which is directly correlated to storage demand.
On the state of investment, Sylvester described a bifurcated market where stabilized assets in strong locations still trade, often at compressed yields, while lease-up deals and land are being repriced or passed over entirely. The lending market remains the main constraint on new investment, with many regional and national lenders risk-averse or overexposed to commercial real estate. Construction financing for self storage is difficult to obtain, and when available, leverage levels are reduced. However, the scarcity of new development due to credit tightening is helping existing assets outperform and sets the stage for strong returns for those who can build or buy in the current cycle.
