Closing the Gap on Self-Storage Facility Value

For the past few years, self-storage buyers and sellers have been staring across a wide value gap. Sellers remained anchored to the peak pricing seen in 2022, clinging to the belief that their properties were still worth those high figures. Meanwhile, buyers were paralyzed, spooked by climbing interest rates and uncertain rent projections. Deals stalled. Transactions plummeted. It seemed no one could agree on what facilities were actually worth.

But that gap is finally beginning to close. Investors are more optimistic. Sellers are more realistic. And many are coming to terms with the fact that 2022 pricing wasn’t personal, it was circumstantial. Record-low interest rates, trillions in stimulus money, a pandemic-fueled housing frenzy and the underperformance of other asset classes created the perfect storm. As a result, the market soared, and self-storage facilities sold for numbers no one ever thought possible.

Now, the tide has shifted. Buyers are regaining confidence as interest rates stabilize, allowing them to finally “pencil” deals again. With the 10-year Treasury sitting at rates well below the nearly 5% at which they peaked last fall, volatility is easing, capital is beginning to flow and transactions are picking up. The market is moving once again, and with that, the question of value is back in the spotlight.

This article explores the evolving self-storage investment landscape, offering insight to the factors impacting facility value today.

Where Are We Now?

Let’s look at the numbers. According to Green Street’s Commercial Property Price Index, self-storage values are down about 23% from the March 2022 peak. But step back a bit further and you’ll see values are still up nearly 50% from pre-COVID levels. This isn’t a collapse, it’s a correction.

In April 2022, the 10-year Treasury hovered around 2.83%. Compared to risk-free government bonds, investing in commercial real estate—even at a 5% capitalization (cap) rate—still appeared logical. Today, that same 5% cap seems less appealing when investors can secure a near-guaranteed 4% yield elsewhere. Purchasers now expect enhanced returns to justify the risk. This explains why cap rates have expanded and self-storage values have decreased.

On the rent side, we’ve seen a softening—not a crisis, but a noticeable slowdown that’s been driven by two key factors:

Stagnant residential movement: Homeowners are remaining in place, preserving their below 4% mortgage rates. Why relinquish that advantage to purchase a new home at 7%? With fewer household relocations, the demand for self-storage has diminished.
Overbuilding in key markets: According to online self-storage marketplace StorageCafe, the top 10 construction markets in 2023, which included Charlotte, North Carolina, as well as Dallas and Phoenix, expanded inventory faster than demand could absorb. This imbalance is creating downward pressure on rental rates and occupancy.

Demand remains stable, just not as robust as during 2021 and 2022. Self-storage operators who adapt to these conditions continue generating profits, while disciplined investors discover new opportunities in the adjusted marketplace.

Five Lenses: Who’s Looking at Value?

Self-storage facility valuation isn’t a fixed number, and it changes depending on who’s looking. Here’s how each perspective shapes the number:

The owner. Again, many owners are still tethered to the peak asset values seen during the pandemic and wondering, “It was worth $5 million then. Why isn’t it now?” The truth is the value of a self-storage facility is rooted in net operating income (NOI), not market conditions, and both have changed. Most “natural sellers” cashed out during the run-up. Today’s sellers are those who didn’t grab the bag and are now recalibrating. They’re beginning to accept that previous valuations were the result of market forces, not individual genius. That mindset shift is making deals possible again.

The investor. Cap rates dominate the quick headline, but serious self-storage investors focus on internal rate of return, which accounts for cash flow, debt and projected exit value. Offers vary based on those expectations and cost of debt. Many investors, especially those migrating from office or multi-family, are cautious. They want stronger cash-on-cash returns, conservative underwriting and proven operations. While they’re open to secondary and tertiary markets, buyers are gravitating toward clean, stabilized assets that can deliver immediately.

The developer. Some developers have paused projects or exited the self-storage asset class altogether, but those who stuck around believe in the sector’s fundamentals. They’ve adapted to slower lease-ups, higher construction costs and longer entitlement timelines. They’re shopping for debt as aggressively as they look for a deal on steel. The number of greenlighted projects is fewer, but they’re better vetted. Margins are tighter, and the days of “build it and they will come” are over.

The lender. Loan-to-value ratios used to drive funding. Now, debt-service coverage ratio (DSCR) rules the conversation. If a self-storage facility can’t show a DSCR of 1.3 times the loan amount, gaining approval from a lending institution will be difficult. Bankers want clean trailing 12-month reports, flat rent-growth projections and real expense numbers, including rising insurance premiums and property taxes. They’re lending on what is, not what could be, meaning better-balance-sheet buyers receive more attractive interest rates on their loan.

The tax commissioner. When it’s time to assess value, tax commissioners can be the most aggressive of all. Local governments need revenue, and self-storage facilities are firmly on the radar. Rising assessments mean owners must be prepared to defend their NOI with detailed documentation or risk inflated tax bills.

Three Valuation Methods

Income capitalization. This is the most common method used for income-producing properties like self-storage. It uses the facility’s NOI and applies a market-based cap rate to determine value. In other words, “Given the cash flow this property generates, what would an investor be willing to pay for it today?” Small changes in NOI or the cap rate can significantly swing the value, which is why accurate revenue and expense reporting is critical.

Sales comparison. This strategy examines external market activity rather than internal performance, using recent transactions of comparable self-storage properties to establish benchmarks. Analysts adjust for variations in location, age, size, occupancy and amenities. While this methodology offers straightforward analysis, it works best in active markets with plenty of sales. In slower or unique markets, finding truly comparable data can be challenging, which can make this method less reliable when used independently.

Replacement cost. This calculates what it would cost to build a similar self-storage facility from the ground up today while factoring in land value and current construction costs as well as soft costs like permitting. Depreciation for age and obsolescence is then subtracted to reach an estimated value. Replacement cost can set an upper limit of the asset’s value. If the cost to build new is lower than the asking price of an existing facility, buyers may lean toward new construction instead.

The Bottom Line

No matter who’s evaluating your self-storage facility, one principle remains indisputable: The higher your NOI, the greater your property value. When it comes to the factors that influence those figures, you’re best served to concentrate on the factors that can be controlled:

Revenue enhancement: If your market can’t support rental increases, explore additional income streams such as retail merchandise, tenant insurance, truck rentals and even administrative fees.
Expense management: Examine every category. Renegotiate service contracts, implement utility-conservation measures and optimize staffing efficiency.
Property presentation: Even without immediate plans to sell, operate as though you are. Maintain transparent financial records, well-preserved physical assets and strong occupancy rates to maximize competitive positioning.

When preparing to sell or refinance, secure professional guidance. In today’s market, pricing differentials between top self-storage operators can vary by 25% or more. A competitive bidding environment consistently yields the highest valuation.

As the self-storage market continues to recalibrate, owners who understand these valuation dynamics and focus on operational excellence will be best positioned to maximize their facility’s worth in this new reality, whether they’re looking to buy, sell or simply optimize their existing portfolio.

Jane H. Sauls is a real estate broker and co-owner of Sauls Storage Group LLC, a Carrollton, Georgia-based brokerage and consulting firm specializing in self-storage and other commercial real estate. She’s experienced in industry construction and project management, site selection, feasibility studies, exit strategies, and pro formas. She’s a graduate of the University of West Georgia and holds a Certified Commercial Investment Member designation. To reach her, email [email protected].

About the Author

Jane H. Sauls

Co-Owner, Sauls Storage Group LLC

Jane H. Sauls is a broker and co-owner of Sauls Storage Group LLC, a Carrollton, Georgia-based brokerage and consulting firm specializing in self-storage and other commercial real estate. Her career has included involvement in construction and project management, site selection, feasibility studies, exit strategies, and building pro formas for self-storage owners of all sizes. She’s a graduate of the University of West Georgia and holds a Certified Commercial Investment Member designation. To reach her, email [email protected].

See more from Jane H. Sauls

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