Self-Storage REITs

# Executive Summary * The self-storage REIT sector is navigating a period of stabilization after a "mini-recession," with performance heavily constrained by macroeconomic headwinds, particularly high interest rates and a muted housing market that dampens a key source of demand. * Pervasive oversupply in key markets continues to pressure rental rates and occupancy, leading to negative same-store Net Operating Income (NOI) forecasts across the board for 2025. * In response, leading REITs are accelerating a technological transformation, using AI and automation to slash operating costs, optimize revenue through dynamic pricing, and create a significant competitive advantage. * The industry is consolidating at an accelerated pace, as larger players with strong balance sheets leverage the dislocated market to acquire smaller operators and portfolios. * Financial performance is bifurcated: while same-store fundamentals are weak, some REITs are achieving total revenue growth through aggressive acquisition and management strategies. * The outlook is cautiously optimistic for late 2025 into 2026, as a forecasted decline in new supply should ease pricing pressure and allow demand drivers to recover. ## Key Trends & Outlook The self-storage industry's performance in 2025 is fundamentally shaped by persistent macroeconomic headwinds and regional oversupply. Elevated interest rates have suppressed the housing market, a critical demand driver that accounts for 15-20% of storage needs, leading to lower customer activity. CubeSmart expressed concern about suppressed housing turnover, noting no expected housing recovery in 2025 due to elevated interest rates and consumer hesitancy around major life events. This directly impacts REITs' ability to grow organically and makes new development and acquisitions more costly. Simultaneously, existing oversupply in certain markets, particularly the Sunbelt, has forced operators to reduce street rates, with online rates falling as much as 5.4% year-to-year. National Storage Affiliates noted ongoing challenges in markets with elevated supply, stating some parts of its portfolio are experiencing lower customer activity due to persistent imbalances in supply and demand. The combined effect is negative same-store NOI guidance across the sector, with an average projection of -1.8% for 2025. While new supply is moderating, with construction activity forecasted to decline 15% in 2025, the impact of existing excess inventory will persist throughout 2025. To combat these headwinds, leading REITs are leveraging technology to create a significant operational moat. They are deploying AI and automation to reduce on-site labor, handle customer service inquiries, and reprice thousands of units nightly based on real-time data. Public Storage, for instance, is leveraging its AI-driven operational model to achieve a 30% reduction in on-property labor hours. This digital transformation not only lowers costs but also enhances customer acquisition, with National Storage Affiliates now handling 15% of incoming calls with AI and approximately 65% of total rental volume originating from digital platforms. The primary opportunity lies in consolidation, where the fragmented nature of the market, with 64.5% owned by smaller operators, allows large REITs to acquire assets at attractive valuations and apply their superior operating platforms to enhance margins. The main risk is a prolonged period of high interest rates, which could further delay a housing market recovery and keep demand muted well into 2026, extending the period of negative rent growth. ## Competitive Landscape The U.S. self-storage industry, a massive sector with about 2 billion square feet of rentable space, is undergoing significant consolidation while remaining largely fragmented. The 100 largest operators control about 52% of the market, and just five companies (Public Storage, Extra Space Storage, U-Haul, National Storage Affiliates, and CubeSmart) control 35.5% of the national inventory. However, over 60% of U.S. self-storage facilities are still owned by independent operators, creating a ripe environment for acquisitions and strategic growth. Major players employ distinct strategies to compete and expand their market share. Public Storage exemplifies a model of dominance through immense scale and technological superiority. It operates interests in 3,152 facilities across 40 U.S. states and leverages an industry-leading digital transformation, with 85% digital customer interactions and a 30% reduction in on-property labor hours through AI. This allows for aggressive consolidation, having acquired or being under contract for 6.1 million net rentable square feet for approximately $934.5 million year-to-date as of Q3 2025. In contrast, Extra Space Storage pursues a multi-channel growth strategy heavily featuring third-party management. As the largest owner and operator in the U.S. by store count, with 4,238 owned and/or managed stores, its extensive third-party management platform added 95 stores in Q3 2025, bringing its total managed portfolio to 1,811 stores. This approach generates fee income and provides a proprietary acquisition pipeline with less capital outlay. CubeSmart, meanwhile, focuses on a concentrated portfolio of high-quality assets in top metropolitan statistical areas (MSAs). It owns or partially owns and consolidates 660 self-storage properties and manages 863 stores for other owners, leveraging its "dominant brand" in key urban markets like New York City boroughs. This strategy aims for higher pricing power and insulation from broad oversupply issues. The key competitive battleground is increasingly technological prowess, where advanced pricing and operating platforms are creating a widening gap between the major REITs and smaller owners. Companies like Extra Space Storage utilize sophisticated, proprietary revenue management systems that reprice every unit type nightly, optimizing revenue and customer acquisition. ## Financial Performance Revenue growth in the self-storage REIT sector is bifurcating, reflecting a sharp divergence between weak same-store performance and positive total growth driven by strategic acquisitions. Total revenue growth for the REITs in the latest reported quarters ranges from +5.2% to -0.8%, while same-store revenue growth is generally flat to negative, with Public Storage at +0.1% and CubeSmart at -1.0% in Q3 2025. This bifurcation is a direct result of the material factors impacting the industry. Weak same-store results are driven by oversupply and macroeconomic headwinds depressing rental rates. In contrast, positive total revenue growth is achieved by companies successfully executing a consolidation strategy, adding new properties whose revenue streams offset the organic weakness. This pattern is clear when comparing CubeSmart's +5.2% total revenue growth in Q3 2025, fueled by strategic acquisitions, against the -0.8% decline at National Storage Affiliates in Q2 2025, which has faced more acute pressure from market softness. {{chart_0}} Profitability margins are under pressure from declining revenue and rising costs, but technology leaders are showing significant resilience. TTM Gross Margins for Public Storage and Extra Space Storage cluster in the high 60s to low 70s. Margin divergence is driven by operational efficiency. While all REITs face pressure from lower rental rates and elevated operating expenses like property taxes and insurance, those who have invested heavily in technological transformation can better control costs, particularly labor. Public Storage's sector-leading 73.01% TTM Gross Margin and 53.00% Operating Margin exemplify the power of a tech-enabled, low-cost operating model, which allowed it to hold same-store expense growth to just 10 basis points, providing a crucial buffer against revenue headwinds. {{chart_1}} The dominant theme in capital allocation is strategic investment in external growth through mergers and acquisitions (M&A) and development, funded by disciplined debt management. With organic growth stalled, REITs are allocating capital to acquisitions to drive FFO growth and gain market share, reflecting the ongoing consolidation trend. At the same time, in a high-rate environment, they are carefully managing their balance sheets by issuing long-term notes to refinance near-term debt. Public Storage highlights this focus on growth, with $934.5 million in acquisitions year-to-date as of Q3 2025 and a $650 million development pipeline expected to be delivered over the next two years. This contrasts with National Storage Affiliates, which is strategically selling ten properties for $66.5 million to reduce debt, reflecting a more defensive posture. {{chart_2}} The industry's balance sheets are generally strong and investment-grade, providing the stability needed to navigate the current downturn and fund acquisitions. Decades of disciplined capital management have resulted in strong balance sheets with significant liquidity and access to capital markets. This financial strength is a key competitive advantage, enabling the large REITs to act on consolidation opportunities that arise from market dislocation. Public Storage's A/A2 credit ratings for its senior notes and $1.48 billion available under its $1.5 billion revolving credit facility as of March 31, 2025, are representative of the financial fortitude that allows major players to operate from a position of strength.