KBRA: Self-Storage Outperforms Despite Headwinds

Kroll Bond Rating Agency, New York, reported the self-storage sector has been one of the best-performing property types in commercial mortgage-backed securities, even while facing headwinds in the last two years.

“The sector’s fundamentals have faced some headwinds from moderating demand, driven by stagnant home sales and elevated supply,” KBRA said in a new report, Self-Storage: The Shifting Landscape (subscription).

This came on the heels of a very robust pandemic-era spike in demand from 2020 to 2022, stemming from remote work, relocations, and increased housing activity. KBRA noted key demand drivers for the sector include population growth, household formation, consumer behavior, homeownership affordability and generational trends.

Despite the recent softness in self-storage fundamentals, the CMBS self-storage loan delinquency rate stood at just 0.1% as of September, well below the overall CMBS delinquency rate of 6.6%.

The report noted the U.S. Baby Boomer population has showed a preference toward aging in place, which may put downward pressure on future demand. However, Millennials continue to drive demand through frequent relocations, life transitions and a tendency toward smaller housing footprints, all of which increase their need for storage space.

“Home sales have historically been an important driver of self-storage demand, as relocation creates demand for the property type. They have also been a key indicator for forecasting self-storage performance,” KBRA said.

Recently, the self-storage industry has been boxed in by lower existing home sales, which fell in 2024 to their lowest level in 30 years. The National Association of Realtors reported that there were 1.5 million unsold existing homes at the end of August, which is equivalent to about 4.6 months of supply. By comparison, there were 1.37 million unsold existing homes at the end of August 2024.

With slower home sales, demand for self-storage is expected to remain subdued in the near term. However, the Federal Reserve’s September rate cut–along with its signaling that it may make two additional cuts this year–may help reduce mortgage rates, improve housing affordability and potentially spur home purchases.