Self-Storage Supply Set To Peak In 2025

Yardi Matrix predicts a surge in self-storage supply for 2024-2025, followed by a decline in later years, signaling a major shift in early 2024.

Self-Storage Supply Set To Peak In 2025

Yardi Matrix predicts a surge in self-storage supply for 2024-2025, followed by a decline in later years, signaling a major shift in early 2024.

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Good morning. The self-storage market in the U.S. is gearing up to hit its peak, with a forecasted downturn post-2025.

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PROPERTY REPORT

Self-Storage Supply Set To Peak In 2025

A recent Yardi Matrix report reveals a significant shift in the self-storage sector, with a marked decrease in new supply expected after 2025.

Near-term: In the immediate future, the storage market is seeing a surge. The forecast for 2024 and 2025 deliveries has increased by 10.9% and 12.5%, respectively. This uptick is underpinned by an 8.3% quarter-over-quarter and 11.3% year-over-year rise in construction, totaling 60.1 million net rentable square feet for properties opened before 2020. Notably, the completion times for these constructions are steadying, reflecting a robust development phase primarily fueled by new projects.

Long-term: Peeking further ahead, the picture alters significantly. Forecasts for 2026 to 2029 show a downward revision. The expected growth rates for new supplies are now pegged at around 2.0% of the stock for 2026 and 2027, declining to 1.5% for 2028 and 2029. This revision reflects a 38.7% reduction in new supply for 2028 compared to previous estimates.

Evolving market: A notable trend is the moderating days in construction, although still above long-term averages. The increase in abandoned and deferred projects, alongside a stagnation in the planned and prospective pipelines, signals a cooling interest in self-storage development. This trend is further evidenced by the negative year-over-year change in street rates for 2023.

In the pipeline: The planned pipeline showed a slight expansion in Q4 2023, growing 1.43% to 114.0 million NRSF. However, the prospective pipeline remained relatively flat throughout 2023. The deferred status properties have increased significantly, with a 44.5% year-over-year growth. Moreover, there's been a noticeable uptick in abandoned storage properties, highlighting a shift in market sentiment.

➥ THE TAKEAWAY

Zoom out: The self-storage sector experienced unexpected growth towards the end of 2023, contradicting earlier slowdown predictions. However, the long-term forecast has been significantly scaled back. This recalibration points towards a more conservative growth expectation, aligning with the changing market dynamics and developer sentiments.

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⏪ Weekend Wrap-Up

  • Go-ahead: Tishbees was recently approved to build an 11-story hotel and apartment complex near the LA Convention Center, including a 100-room inn and 48 market-rate units.

  • New record: Student housing pre-leasing surged 7.1% in January, with buildings under construction hitting a record high of 54.5%.

  • Transactions back on track? PE giant KKR & Co. Inc. (KKR) signals an uptick in CRE financing this year, driven by cash-abundant investors looking to capitalize on distress.

  • Value-add: Crow Holdings, a Dallas-based investment firm, has raised nearly $3.7 billion for its latest property investment fund, marking its largest capital raise.

  • Signs of life: Blackstone-backed Great Wolf Resorts secures around $1B in refinancing for 8 destination hotels, indicative of the wider hospitality rebound.

  • Lender confidence: The commercial real estate lending market showed promising signs of stabilization in the final quarter of 2023, as exhibited by the latest CBRE research.

  • Big deals: In 2023, apartment sales saw a 61% decline in overall volume. Six luxury apartment complexes changed hands for over $200M each last year.

  • On pause: Vornado (VNO) halted its 18MSF Penn Station office tower project due to frozen capital markets last January.

  • SFR trends: Don Walker of John Burns Research and Consulting highlights the potential of rental housing, especially build-to-rent communities.

CHART OF THE DAY

Single and multi-family construction on different paths

After the significant decline in multifamily starts in January, it appears likely that the apartment sector will persist as a hindrance to new development throughout this year. However, Capital Economics expects the construction of single-family homes to maintain its growth.

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