Macroeconomic Highlights

In Q1 2025, macroeconomic conditions remained complex, marked by persistent inflation, interest rate volatility, and regionally uneven demand trends. Elevated borrowing costs continued to constrain transaction volume across all sectors, widening bid-ask spreads and prolonging asset sales. The Federal Reserve’s cautious stance on rate cuts—delaying any major pivot due to stubborn service sector inflation—has kept capital markets dislocated. However, sector-specific fundamentals proved resilient. Medical office REITs benefitted from long-term demand tailwinds in outpatient care and health system expansion, while manufactured housing operators sustained momentum through affordability-driven demand and strong rent collections. In contrast, self-storage REITs navigated a softer leasing environment in overbuilt Sunbelt markets, with street rates and occupancy under pressure, but sequential improvement by April hinted at potential seasonal uplift.

Notably, structural affordability challenges in the U.S. housing market—compounded by limited new supply and elevated mortgage rates—have bolstered demand for both manufactured housing and rental storage solutions. UMH and Sun Communities reported strong rent growth and high tenant retention, aided by constrained housing alternatives and capital recycling strategies such as Sun’s $5.65 billion Safe Harbor Marinas divestiture. Meanwhile, healthcare REITs such as Healthcare Realty Trust and Healthpeak highlighted disciplined pricing and lease-up pipelines, counterbalancing concerns over operating cost inflation and policy uncertainty. Though all sectors face varying degrees of weather-related and inflationary headwinds, their exposure to essential services and demand-stable demographics continues to provide a durable buffer in today’s high-rate, low-growth macro environment

Q1 2025 Self-Storage REIT Data Overview

Q1 2025 Self-Storage Operating Fundamentals

Self-Storage Rental Rates

Self-Storage Occupancy

Occupancy trends diverged, with improvements visible at some REITs but deterioration continuing at others. Extra Space ended the quarter with same-store occupancy at 93.4%, up 20 basis points from Q1 2024, supported by low move-out activity and stable delinquency. Public Storage narrowed its same-store occupancy gap to -40 bps YoY by March and further to -10 bps by April, citing 1% lower move-outs and strong tenant behavior. CubeSmart reported same-store ending occupancy of 89.7% in Q1, down 70 bps YoY, but this was a marked improvement from the 120 bps decline in Q4; April ended at 89.9%. National Storage Affiliates reported a 230 basis point year-over-year decline in same-store ending occupancy, and noted that April occupancy increased 20 basis points to end the month at 83.8%.

Self-Storage Income & Expenses

Expense performance varied significantly depending on cost controllability. Extra Space reduced controllable expenses by 1.3% YoY through operational efficiencies and strategic cost control, while uncontrollable expenses rose 8% due to rising property taxes and severe winter weather. This led to a 1.2% decline in same-store NOI. CubeSmart recorded a 0.6% YoY increase in same-store expenses, outperforming internal models due to favorable results across marketing, R&M, personnel, and weather-related items. Despite revenue falling 0.8%, this restrained expense growth resulted in a 0.8% decline in same-store NOI. Public Storage kept same-store expense growth to just 10 basis points, attributing this to its optimized operating model and reduced advertising spend. This strong cost discipline reinforced its sector-leading operating margins. NSA’s same-store expenses increased 3.7% in the first quarter, driven by elevated marketing, repairs and maintenance due to winter storms, and utilities, partially offset by a decrease in personnel costs. These dynamics contributed to a 5.7% decline in same-store NOI.

Self-Storage Investment & Transaction Activity

All four REITs were active on the investment front, but strategies differed. Extra Space completed $153.8 million in wholly owned acquisitions, dissolved a 23-property JV to gain full ownership of six properties, and added 100 net third-party managed stores to its platform. It also closed $53.2 million in bridge loans and sold $27.7 million, maintaining a bridge loan portfolio of ~$1.4 billion. Its program has originated $2.5 billion in total loans, with 24% of that value eventually acquired as properties—creating a proprietary acquisition pipeline. CubeSmart executed the $452.8 million acquisition of the remaining 80% interest in its HBP4 joint venture, acquiring 28 early-stage lease-up assets in top 30 MSAs, with no encumbrances. Public Storage deployed $144 million in new development and held $650 million in pipeline projects. It also acquired or contracted $184 million across 14 properties, up substantially from $35 million at the same point last year. PSA continues to explore domestic and international growth, including a proposed acquisition of Abacus Storage King in Australia and New Zealand. NSA acquired three wholly owned properties totaling approximately $40 million during the first quarter and sold two properties for $10 million, with proceeds allocated to debt repayment and future acquisitions. The company indicated that acquisition activity is increasing and anticipates announcing additional transactions in the coming months.

Self-Storage Cap Rates & Bid-Ask Spread

Cap rate environments remained dislocated, reflecting limited transaction volume. Extra Space provided detailed data: acquisition yields ranged from 2.3% to 6.5% depending on lease-up status, with stabilized cap rates in the upper 6s to 7%. Management noted that transaction volume is too low to determine a reliable market-clearing rate. Public Storage echoed this view, indicating consistent go-in yields in the 5% to low-6% range, stable over recent quarters despite capital markets volatility.

Headwinds in the Self-Storage Market

Common headwinds included persistent macroeconomic uncertainty, a muted housing market, and elevated operating costs. Extra Space anticipated reduced occupancy benefit in the second half of 2025, especially in oversupplied markets such as Atlanta, Phoenix, and coastal Florida. Weather-related expenses and property tax pressures also weighed on EXR’s margins. Public Storage cited a 100 basis point expected revenue impact from fire-related pricing restrictions in Los Angeles. 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. NSA noted ongoing challenges in markets with elevated supply, stating that some parts of its portfolio are experiencing lower customer activity due to persistent imbalances in supply and demand. The company also reported a modest increase in promotional discount usage over the past two to three months, though it emphasized that discounting remains within historical norms.

Tailwinds in the Self-Storage Market

Despite headwinds, certain tailwinds emerged across the portfolios. Extra Space saw above-average performance from the rebranded Life Storage assets and continued to grow its managed platform and bridge loan funnel. The consolidation also yielded $1.3 million in paid search savings in Q1 alone. Public Storage’s digital platform and new AI-enhanced operating model now facilitate 85% of customer interactions, reducing labor needs and driving margin gains. Its non-same-store portfolio saw 11% revenue growth, and it expects an incremental $80 million in NOI from these assets as they stabilize. CubeSmart reported narrowing year-over-year declines in revenue and occupancy and observed stabilization in previously challenged markets like Northern New Jersey, Phoenix, and Atlanta. NSA expressed optimism around improving fundamentals, noting that two of its largest markets—Houston and Portland—inflected positive in the first quarter. Management attributed this to easing supply conditions and the benefits of enhanced marketing, pricing tools, and the ECRI program, which have driven sequential contract rate growth and better top-of-funnel activity.

Q1 2025 Self-Storage REIT Data by MSA