Storage REITs: The Times Are A-Changin'
- Self-storage REITs- which delivered the most impressive rebound of any property sector throughout the pandemic- have built on their gains in early 2022 following a jaw-dropping 80% surge last year.
- Stumbling into the coronavirus pandemic with challenged fundamentals and an outlook for near-zero growth amid oversupply challenges, self-storage demand soared over the past year, powering record occupancy increases, and rent hikes.
- Storage demand is driven largely by "change"- specifically home sales and rental turnover. The surge in mortgage rates this year appears likely to slow turnover and temper storage demand.
- Storage REITs have been persistently underestimated over the past two years, however, and the turnover-driven demand slowdown may be partially offset by the tailwinds from rising residential rental rates.
- While valuations are not as compelling as last year, the sector's strong balance sheets, low cap-ex profile, and above-average external growth potential warrant a premium multiple and long-term allocations.
