2024 vs 2026: Development Conditions in 2026

In January 2024, I wrote an article for ISS titled “What’s Happening to Self-Storage Development in 2024.” In it, I outlined many of the headwinds facing the industry at the time—rising interest rates, declining rental rates, and surging construction costs among them—along with key feasibility considerations.

Two years later, I’m revisiting those same themes to assess how the landscape has evolved and what new challenges and opportunities lie ahead as we move into 2026. While headwinds certainly remain, there’s good reason to believe the worst is behind us.

Interest Rates

Interest rates for construction loans are made up of two components: the index and the spread. While there are several index options that lenders can use for structuring their loans, the most common index is SOFR (Secured Overnight Financing Rate), which is what we’ll focus on.

SOFR went from an average of around 5.3% in January 2024 down to 4.2% in November 2025, representing a 1.1% decline.

SOFR

January 2024: 5.3%

November 2025: 4.2%

Change: -1.1%

Spreads

SOFR has come down, which is great, but remember that the index is only half the story. The other component—the spread—reflects how much extra return a lender needs to compensate for perceived risk. Spreads fluctuate based on factors like liquidity, credit risk, and overall market sentiment. When banks feel confident and flush with capital, spreads compress. When the market tightens or uncertainty rises, they widen.

In summary, spreads generally change based on:

1. Borrower Factors: This includes the level of risk associated with the developer’s experience and financial strength.

2. Deal Factors: This has to do with the quality of the market, proposed loan-to-cost, construction risk, and general financial underwriting. A feasibility study helps to solidify the deal-level risks.

3. Lender Factors: Each lender has its own risk appetite, which can change on a dime. For example, a lender with a lot of capital to deploy will be more open to negotiation on spread, and thus will be comfortable with a lower spread. A lender that is close to meeting their deployment targets may only accept deals with a higher spread.

4. Macroeconomic Factors: Lenders may adjust their spread solely based on perceived risk in the market—tariffs, fed policy, recession fears, geopolitical risk, or sector sentiment can influence spreads. Many lenders, influenced by the headlines of declining self-storage rental rates, believe that self-storage is overbuilt in general, which prompts higher spreads.

Spreads ultimately reflect 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.

Rental Rates

According to Storable, which surveys more than 30,000 facilities nationwide, the average self-storage unit rented for $96.16 per month at year-end 2023. In November 2025, the same Storable survey showed an average monthly rental rate of $107.76, representing a Compound Annual Growth Rate (CAGR) of 6.7% per year.

Note that Storable reported a high of $116.49/mo in July 2021. So, even though rental rates have seen solid growth since year-end 2023, we are still roughly 7.5% down from 2021 peaks.

In sum, even though we are down from industry peaks in 2021, we have still seen year-over-year growth in rental rates.

According to the same Storable survey data, average occupancy was around 84% in early 2024 and has since fallen to 81% in Q3 2025. This means that achieved rental revenue per available unit has gone from $80.78 to $87.18, representing a CAGR of 4.5%. This is good.

Construction Costs

Construction costs soared during the COVID years, driven largely by an unprecedented spike in steel prices. 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.

At the same time, strong household mobility, record housing turnover, and pandemic-era decluttering pushed self-storage demand to historic highs, allowing deals to keep closing despite swelling budgets.

Since early 2023, cost escalation has slowed—most national construction-cost indices (like Turner, ENR, and RLB) show 3–6 percent annual increases—but prices have not returned to pre-COVID levels (despite steel prices dropping). Meanwhile, street rental rates have retreated roughly 15–20 percent from their 2022 peaks according to Yardi and Storable. 

In short, costs have continued to increase, while rental rates have not kept up.

Demand for Self-Storage

The biggest demand drivers for self-storage include housing mobility (AKA people moving houses), household formation, population growth, employment, and wages, among others. While these metrics don’t explain everything, they can help provide some clarity into the strength of the storage market.

Mobility and Housing Turnover

Mobility remains the single most important driver of self-storage demand—and it’s at historic lows. Census data show Americans are simply staying put, locked into cheap mortgages or stable leases.

Existing-home sales have plunged from 6.1 million in 2021 to roughly 4.0 million in 2024 according to the National Association of Realtors—the weakest housing turnover since 1995. The main culprit is the “lock-in effect”: 78% of homeowners hold mortgages at least two percentage points below current rates, according to Redfin, making relocation financially unattractive.

Renters are staying put too. RealPage reports lease-renewal rates reached 68% in 2024, up from about 52% before the pandemic, as tenants avoid steep rent increases and moving expenses. Fewer home sales, fewer lease expirations, and fewer interstate relocations all translate into fewer storage rentals. The result is a housing market that’s not shrinking—but frozen.

Household Formation and Population Growth

As new households stabilize, they often need storage to help with the transition. According to the Census, annual household formation slowed from 1.7 million net new households in 2021 to 1.1 million in 2024.

The Harvard Joint Center for Housing Studies projects that household formation over the next decade will average roughly 860,000 per year, which is even slower than it is now. If these projections are true, this could mean even softer demand for self-storage in years to come, if not offset by increased household mobility or other factors.

Employment, Inflation, and Real Wages

In January 2024, unemployment was 3.7%. As of Q3 2025, unemployment is around 4.3%, which is still within a normal range and is historically strong. Year-over-year inflation rates have been consistent—3.1% in January 2024 and 3.0% in November 2025.

Real median household income (adjusted for inflation) was around $79.5k in 2020 and reached $83.7k in 2024, which is a positive.

New Supply

The self-storage sector went through an unprecedented development boom from 2020 through 2022. Pandemic-era migration, household formation, and record rent growth drove a surge of new projects—many financed when construction debt was still in the 4%–5% range. 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 changed quickly. Rising interest rates, softening street rents, and higher construction costs 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 Yardi Matrix, self-storage starts fell about 20% year-over-year in 2024, and the national pipeline under construction has settled around 2.6%–2.7% of existing supply. More projects are being postponed or canceled outright as developers wait for capital costs 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’s left are stable but subdued deliveries—roughly 50 million square feet or less of new space expected annually through 2026—enough to replace aging stock but far below the expansion pace of the pandemic years.

Pro tip: If you’re relying on supply numbers from services like Yardi, StorTrack, or TractIQ, make sure to research each “incoming” project individually. You’ll notice that many projects—especially in the “planned” category—have either been canceled or placed on hold.

Has Self-Storage Lost Its Shine?

With all the headwinds our industry has faced over the past few years—high interest rates, softening demand, rising costs, cap rate expansion, fears of oversupply, and an overall tempering of investment return expectations—institutional capital has taken a more selective approach to its self-storage investment allocations.

The sector that once stood out for outsized pandemic-era 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?

I realize the points I’ve raised thus far may paint a cautious picture for the self-storage industry, 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 for optimism:

1. Stabilizing Supply: The construction boom of 2020–2022 is being steadily absorbed, and new deliveries since then 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 pandemic-era supply is absorbed, healthy demand should continue to increase in the years ahead.

2. Rebounding Rental Rates: After a period of softening in 2023–2024, rental rates are showing consistent year-over-year gains again. The recent growth suggests that pricing power is returning as operators work through the wave of supply added in prior years.

3. 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 has declined from the low-7% range in late 2023 to the low-6% range today. While that isn’t enough to fully unlock homeowners still holding 3% mortgages, it’s a step in the right direction. As borrowing costs ease, household mobility—and by extension, storage demand—should gradually improve.

4. Broader Economic Health: Key economic indicators remain supportive. Household incomes have continued 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 storage space even as new supply moderates.

While the self-storage fever days of 2021-2022 are 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 cycle of growth takes hold.