Though not immune to the effects of a higher interest rate environment, key self storage real estate indicators largely signal a "return to normal" in the first half of 2024 after achieving record-level market performance in 2022.
- Transaction volume totaled nearly $3.36 billion in the first half of 2024, which is less than one percent above the total transaction volume reported for the first half of 2023. This level of volume is more in-line with transaction trends prior to the surge in self storage investments realized between 2020 and 2022. During this period (2020 to 2022), nearly $50 billion in transaction volume was realized, far exceeding the $35 billion in transaction volume realized in the seven years prior (2013 – 2020).
- The rising interest rate environment has pushed capitalization rates up for all commercial real estate, with self storage capitalization rates increasing by 90 basis points from Q4 2022 lows to 5.9% in Q2 2024. Property market fundamentals were also challenged during this period, with Midwest and Southwest regions experiencing the greatest levels of decline in rent per available square foot at -11.2% and -10.1%, respectively.
- Same store indications from Cushman & Wakefield’s proprietary valuation index show that self storage valuations softened in Q1 2024, averaging $190 psf for Class A properties and $124 psf for Class B properties. Valuations declined from the previous quarter by 20% for Class A and 15% for Class B properties, albeit with a range of disparity. More recent trends do indicate that valuations have leveled and may begin to slowly tick upwards.
- Despite the average spread between capitalization rates and the 10-year treasury remaining well below historical levels, 56% of the more than 50 self storage experts who participated in Cushman & Wakefield’s investor survey expect little to no change in capitalization rates over the next 12 months. Despite various crosscurrents that still exist, increased investment activity is expected in the second half of 2024, as property market fundamentals improve and confidence returns to the capital markets.
