Self-Storage Rates Fall In a Time When Performance Should Be Strong

Street rates for self-storage units – the monthly rental rates quoted to potential new tenants — moved in a negative direction in May in all top metros tracked by Matrix, according to Yardi Matrix’s self-storage national report.

“Current economic conditions and the impact on the real estate market continue to dampen the self-storage sector’s performance, which is typically strongest at this time of year,” the report stated.

High interest rates will continue to influence storage demand from home sales and self-storage transaction activity well into 2025, the company said.

The national average annualized same store asking rent fell 4.5% from $17.36 in May 2023 – a 3.8% drop year-over-year — to $16.44 this year. However, the share of projects under construction, measured by net rentable square feet, remained unchanged from April to May 2024 at 3.6% of existing stock.

Self-storage REITs continued to face the worst rent declines “with same-store rents at stabilized properties down 6.7% vs -3.5% for their non-REIT competitors in the same markets and a deceleration from -6.2% in April,” the report stated.

“Many of these high-growth markets [in the Sunbelt] continue to face weak street rate performance due to their recent influx of new storage supply. Long-term growth in many of these markets will depend on an easing of mortgage rates.”

On a monthly basis, however, the report found nearly all top metros saw positive rent growth month-over-month in May, with national average combined street rates per square foot up 0.6% (10 cents) to $16.44 compared to April. “Street rates are returning to their normal seasonal patterns and have shown stronger growth April to May this year than last year,” it stated.

The report also found that the positive growth in monthly asking rates was broader based. Same-store street rates per square foot rose month-over-month in 28 of the top metros Yardi tracks. However, Portland and Atlanta saw average combined rates drop.

The highest monthly rent increases were recorded in Austin, where supply has diminished and new supply delivered in the trailing 36 months has fallen to 5.6%, compared to 17.6% in May 2021.

Some top metros saw strong rent performance in both their storage and multifamily markets. New York fared best, with just a 1.5% year-over-year rent decline in May for 10×10 non-climate-controlled units. Atlanta headed the pack as a top metro with the weakest apartment rent performance and some of the worst-performing street rate growth in May, with storage asking rates falling 8.4% annually. The report noted, however, that Atlanta’s healthy population growth could bode well for longer-term supply-demand dynamics.

Lease-up supply slowed on a national level. Philadelphia added the most new supply over the past three years. On the other hand, some markets – like New York, Denver, Seattle and Nashville — saw significant rent growth because of a decline in square footage in lease-up. Month over month, the new supply pipeline remained relatively flat, equivalent to 3.6% of existing inventory through the end of May (76.1 million net rentable square feet under construction). More than half of the top 30 markets saw an increase in under-construction activity since 2023, especially Tampa, Charleston, Nashville and the Inland Empire. The largest decrease in the construction pipeline was experienced in Orlando, though it still had the largest under-construction activity of all 30 markets.