Self Storage Industry Sees Return to Positive Rental Growth as Supply Constraints Persist
DXD Capital's Q2 2025 report shows self storage rental rates returning to growth after two years of compression, with constrained development and stable occupancy creating favorable conditions for operators.
The self storage industry is experiencing a significant shift as rental rates return to positive growth after more than two years of compression, according to Cory Sylvester, Principal at DXD Capital. The company recently released its Self Storage Report for the second quarter of 2025, revealing that major REITs including Extra Space and Public Storage are reporting modest to significant year-over-year rate increases.
Sylvester noted that the return to positive street rate growth across all three major REITs represents a fundamental shift in market dynamics. This pricing power resurgence is driven by a combination of stable occupancy levels and a severely constrained new supply pipeline. Development activity has been significantly reduced due to tighter lending standards, construction cost inflation, and longer entitlement timelines, with many developers holding entitled land while waiting for debt markets to reopen.
The constrained development environment is expected to persist into 2027, creating a major tailwind for existing operators and new developments that can secure financing. Markets with limited developable land, high regulatory barriers, and wealthy populations continue to be particularly underserved, presenting opportunities for strategic investment. The current lending market remains the primary constraint on new investment, with many regional and national lenders maintaining risk-averse positions or being overexposed to commercial real estate.
Looking forward, DXD Capital anticipates moderate rental rate growth to continue through the remainder of 2025, particularly in high-barrier markets where supply is limited. Occupancy is expected to remain elevated and stable, supported by disciplined discounting practices and the lack of new supply. If interest rates begin to decline and home transaction volumes increase in 2026, stronger upward pressure on rental rates is anticipated as operators regain pricing power without sacrificing occupancy.
The investment landscape remains bifurcated, with stabilized assets in strong locations continuing to trade at compressed yields, while lease-up deals and land are being repriced or passed over entirely. The scarcity of new development due to credit tightening is helping existing assets outperform and sets the stage for strong returns for those who can build or buy in the current cycle, despite the challenges in obtaining construction financing.