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26 Apr 2024

Lending Landscape: What Is on the Horizon?


James McLean

Union Realtime

Lending Landscape: What Is on the Horizon?

As of now, 2024 is showing signs of increased sales activity in the self-storage market, with a hope that stabilization of interest rates (September cuts are looking promising) will attract investors with a clearer understanding of capital availability and self-storage lending thresholds. Pricing has also moderated, with a slightly tighter bid-to-ask spread compared to the previous year.

Uncertainties regarding occupancy and rental rate growth in major metropolitan markets have led investors to be more cautious as occupancy is retracting in many areas and asking rates decline or flatten. But the primary factor is interest rates. Consumer movement - which drives a large percentage of self-storage demand, is closely tied to interest rates and inflation. If rates come down, consumer movement and their need for self-storage may increase.

As far as investors are concerned, those who can quickly identify and secure deals before sellers expect higher values will benefit from the tighter bid-ask spread. However, as interest rates begin to fall, sellers may once again anticipate higher property values, emphasizing the importance of moving quickly if you can secure capital at a good rate.

Self-storage investors should keep a close eye on overbuilding in the market, as well as the influence of self-storage Real Estate Investment Trusts (REITs). REITs impact market dynamics by dropping rental rates, forcing smaller operators to follow suit or risk significant drops in occupancy (especially if they are in a lease-up period). In such a competitive environment, returning to the basics of self-storage investment, such as building simple, drive-up, non-climate structures, for a lower cost in a market with a lower level of competition may offer a competitive advantage.

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