
Alex Pettee, CFA
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.
