Self-Storage Development Landscape: Struggles and Opportunities

Two years ago, self-storage developers were facing numerous challenges, from rising interest rates to softening rental rates to surging construction costs. Has the landscape improved? Are there new obstacles? What about fresh opportunities? Let’s take a look.

Interest Rates

Interest rates for construction loans consist of two components: the index and the spread. While lenders have several index options for structuring their loans, the most common is the Secured Overnight Financing Rate (SOFR). This dropped from an average of 5.3% in January 2024 to 4.2% in November 2025.

The fact that SOFR has declined is great, but it’s only half the story. The spread reflects how much extra return a lender needs to compensate for perceived risk on a self-storage investment. It can fluctuate based on many factors. When banks feel confident and are flush with capital, the spread compresses. When the market tightens or uncertainty rises, it widens. There are four primary factors that cause these swings:

Borrower qualifications. This includes the level of risk associated with the borrower’s experience and financial strength.

Deal structure. This involves the quality of the market, proposed loan-to-cost ratio, construction risk and general underwriting. In the case of self-storage, a feasibility study helps solidify the investment.

Lender motivation. Each institution has its own risk appetite, which can change on a dime. For example, a lender with abundant capital to deploy will be more open to negotiation on pricing and thus comfortable with a lower spread. Another that’s close to meeting deployment targets may only accept deals with higher pricing.

Macroeconomics. Some lenders adjust their pricing based on perceived market risk caused by tariffs, Federal Reserve policy, recession fears, geopolitical risk or sector sentiment. All can influence rates. Other lenders are swayed by headlines about declining self-storage rental rates, or they believe the sector is overbuilt, which prompts higher cost of capital.

A spread ultimately reflects three layers of risk: the borrower/deal, the lender and the broader market. A well-capitalized sponsor can control the first, sometimes influence the second, but never escape the third.

Market Demand

The biggest drivers of self-storage demand include housing mobility, household formation, employment, population growth and wages. While these metrics don't explain everything, they can help provide clarity into market strength.

Housing mobility remains the most important factor, and it’s currently sitting at historic lows. Census data shows that Americans are staying put because they’re locked into attractive, low-interest-rate mortgages. According to technology-powered real estate brokerage Redfin, 78% of homeowners have a loan that’s at least two percentage points below current rates. This means moving into a similar home would cost significantly more, so people don’t move.

Household formations over the next decade will average roughly 860,000 per year, a number that’s even lower than the current low level, according to the Harvard Joint Center for Housing Studies. If this projection proves accurate, it could mean softer demand for self-storage in years to come, unless this trend is offset by increased housing mobility or other factors.

In January 2024, the U.S. unemployment rate was 3.7%. As of the third quarter of 2025, it sat at 4.3%. Even with the increase, it’s still historically strong. Year-over-year inflation rates have been consistent, coming in at 3.1% in January 2024 and 3% in November 2025. Real median household income, when adjusted for inflation, rose from $79,500 in 2020 to $83,700 last year, which is encouraging.

New Supply

The self-storage sector went through an unprecedented development boom from 2020 to 2022. Housing migration, household formation and record rent growth drove a surge of new projects, and owners/investors financed their properties when construction debt was still between 4% and 5%.

Developers rushed to capture demand, and total square footage under construction climbed to roughly 4% of existing inventory, one of the highest levels on record. That momentum carried into early 2023, but the environment shifted quickly. Rising interest rates, softening street rents and higher construction expenses compressed yields, making new deals harder to pencil.

By late 2024 and into 2025, the boom had clearly given way to a slowdown. According to market-intelligence platform Yardi Matrix, self-storage project starts fell about 20% year-over-year in 2024, and the national pipeline under construction settled at around 2.7% of existing supply. These days, projects are being postponed or canceled outright, as developers wait for capital expenses to ease and rental rates to stabilize.

The once-flooded planning pipeline has rolled over, with prospective projects down roughly 25% year-over-year. What remains are stable but subdued deliveries, with enough new self-storage facilities opening to replace aging stock but still far below the exuberant expansion pace during the boom years.

Rental Rates and Occupancy

According to Storable, which annually surveys more than 30,000 self-storage facilities nationwide, rental rates peaked in July 2021 at $116.49 per month. At the end of 2023, the average unit rented for $96.16 per month. Two years later, the same survey showed an average monthly rate of $107.76. Even though rates have recovered, we remain roughly 7.5% below the peak.

According to the same survey data, average self-storage occupancy was nearly 84% in early 2024 and had dropped to 81% as of the third quarter of 2025. This means that achieved revenue per available unit has increased from $80.78 to $87.18, which is encouraging.

Construction Costs

According to the U.S. Bureau of Labor Statistics, the producer-price index for steel-mill products more than doubled between 2019 and mid-2021, inflating hard costs for metal-building projects like self-storage. Since early 2023, that escalation has slowed. Most national construction indices show those annual increases at between 3% and 6%.

Investor Appeal

With all the headwinds the self-storage industry has faced over the past few years, institutional capital has taken a more selective approach to its investment allocations. The sector that once stood out for outsized performance is now viewed alongside other stabilized income plays. Many investors are shifting focus toward higher-growth asset classes like industrial, data centers and single-family rental while treating self-storage as a steady, cash-flowing hold rather than a growth vehicle.

What Does the Future Hold?

These data points may paint a cautious picture for self-storage development, but there are still many reasons to be optimistic. As any good contrarian investor will tell you, the best time to plant your seeds is while everyone else is still checking the weather. Here are a few reasons to feel good about what lies ahead:

Broader economic health. Key economic indicators remain supportive. Household incomes continue to rise in real terms, population growth has stabilized after pandemic volatility, and employment remains historically strong. Taken together, these trends point to an economy capable of sustaining steady demand for self-storage space, even as new supply moderates.

Easing interest rates and gradual return of mobility. The Federal Reserve has begun trimming the federal-funds rate, and the average 30-year-mortgage rate for single-family homes has declined from just over 7% in late 2023 to a little above 6% as of this writing. While that drop isn’t enough to fully unlock homeowners who are holding those appealing 3% mortgages, it’s a step in the right direction. As borrowing expenses ease, housing mobility—and by extension, storage demand—should gradually improve.

Stabilizing supply. The construction boom of 2020 to 2022 is being steadily absorbed, and new deliveries have normalized to a more sustainable pace. The U.S. population continues to grow, and self-storage is increasingly viewed as a household necessity rather than a discretionary expense. As the existing supply is leased up, healthy demand should continue to increase in the years ahead.

Rebounding rates. After a period of softening during the last two years, self-storage rental rates are showing consistent year-over-year gains. Recent growth suggests that pricing power is returning as operators work through the wave of new properties that were built.

While the fever of self-storage development is behind us, there are several reasons to be optimistic about the industry in coming years. Those who are willing to build, buy or expand during this period of relative caution are likely to be rewarded when the next growth cycle takes hold. In self-storage, as in all real estate, fortunes aren’t made during the boom but in the years leading up to the next one.

Derek Walker is a principal of self-storage consulting firm Box Pro, which specializes in feasibility studies. He also develops and manages properties for Storage of America, which operates 25 facilities in five states. To reach him, call 801.839.5844 or email [email protected].

About the Author

Derek Walker

Principal, Box Pro

Derek Walker is a principal of self-storage consulting firm Box Pro, which specializes in self-storage feasibility studies. He also develops and manages self-storage properties for Storage of America, which operates 25 facilities in five states. To reach him, call 801.839.5844 or email [email protected].

See more from Derek Walker

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