Self Storage Industry Shows Signs of Recovery with Return to Positive Rental Growth

The self storage industry is experiencing a notable turnaround as major REITs report positive street rate growth for the first time in over two years, according to DXD Capital's Q2 2025 Self Storage Report. Cory Sylvester, Principal at DXD Capital, revealed that Extra Space posted greater than 2% year-over-year growth while Public Storage reported modest increases, marking a significant shift from the prolonged period of rate compression that has characterized the industry.

This return to positive growth suggests that pricing power is returning to self storage operators, driven by a combination of stable occupancy levels and a severely constrained new supply pipeline. The development landscape remains challenging due to tighter lending standards, construction cost inflation, and extended entitlement timelines that have significantly reduced new project starts. Many developers are currently sitting on entitled land while waiting for debt markets to reopen, creating a sharp slowdown in deliveries that is expected to persist into 2027.

The constrained development environment creates a major tailwind for existing operators and new developments that can secure capitalization. Markets with limited developable land, high regulatory barriers, and wealthy populations continue to be particularly underserved, presenting opportunities for strategic investment. The current lending market remains the primary constraint on new investment activity, with many regional and national lenders maintaining risk-averse positions or being overexposed to commercial real estate.

Construction financing for self storage projects has become difficult to obtain, and when available, leverage levels are significantly reduced compared to previous cycles. However, this credit tightening has created scarcity in new development, which is helping existing assets outperform expectations and setting the stage for strong returns for those able to build or acquire properties in the current market cycle. The investment landscape is described as bifurcated, with stabilized assets in strong locations continuing to trade at compressed yields while lease-up deals and land acquisitions are being repriced or passed over entirely.

Looking forward, moderate rental rate growth is expected to continue through the remainder of 2025, particularly in high-barrier markets where supply remains limited. If interest rates begin to decline and home transaction volumes increase in 2026, stronger upward pressure on rental rates is anticipated as operators regain pricing power without sacrificing occupancy. Occupancy levels are expected to remain elevated and stable, supported by the lack of new supply and disciplined discounting practices that allow REITs to maintain occupancy while pushing rental rates higher.