Risks of investing in self-storage REITs
While self-storage REITs have been excellent long-term investments, they're not without risk. There are two notable sector-specific risks:
- Oversupply risk: Because self-storage facilities are cheap to build and operate, there are low barriers to entry. Developers can quickly build new capacity, increasing competition for customers in a market and weighing on occupancy levels and rental rates at existing facilities.
- Economic risk: Due to the short-term nature of self-storage leases, the sector has more exposure to an economic downturn. If the economy takes a hit, fewer people will move. Businesses might also cut expenses, which could impact occupancy and rental rates.
In addition to those sector-specific risks, self-storage REITs face two intertwined potential headwinds common to the entire REIT sector:
- Financing risk: As interest rates rise, borrowing money becomes more expensive. If a REIT has significant floating-rate debt or near-term maturities, rising rates can increase its interest expense. Higher interest rates can also affect a REIT's ability to finance acquisitions and development projects.
- Interest rate risk: Rising interest rates tend to weigh on REIT stock prices. That's because it makes lower-risk alternatives, such as bonds, more attractive investments, since their yields rise. As a result, REIT stock prices tend to fall, pushing up their dividend yields to compensate investors for their higher risk profiles.
Factors to consider when choosing self-storage REITs
Investors need to evaluate a few things before adding a self-storage REIT to their portfolio, including:
- Size: Whether to invest in a larger-scale REIT or a smaller one with more growth potential.
- Development strategy: Some REITs invest only in stabilized operating properties, while others engage in ground-up development, a higher-risk, higher-reward strategy.
- Portfolio mix: Some REITs focus more on owning self-storage properties, while others have a third-party management platform.
- Geography: Some REITs only own properties in certain U.S. markets, while others are more broadly diversified, including internationally.
Key Trends in the Storage Industry
Demand for self-storage space was muted in early 2026. Rates declined by a modest 0.3% year-over-year in February 2026, according to Yardi Matrix. Meanwhile, the pipeline of new self-storage supply remained strong at 48.4 million net rentable square feet under construction, equivalent to 2.4% of the existing inventory in February. These factors could put pressure on occupancy levels and rental rates in 2026.
Self-storage REITs have historically been great investments
Self-storage REITs benefit from a combination of lower costs, high demand, and short-term lease structures, which have enabled the sector to steadily increase income. That has helped the industry generate above-average total returns over the years. The ability to earn high returns makes self-storage REITs attractive options for real estate investors.
