Lower demand, rising expenses spur NOI decline for self-storage REITs

Reduced new customer demand for self-storage rental has spurred a decline in same-store net operating income for self-storage REITs.

Self-storage was the sole property sector to log a median decline in same-store NOI for the second quarter of 2024, with a 1.6% drop. In comparison, the median same-store net operating income (NOI) across all US REITs for the second quarter increased 2.6%.

All self-storage REITs log same-store NOI drop in Q2

All five self-storage REITs reported a decline in same-store NOI for the recent quarter. National Storage Affiliates Trust reported the largest drop in same-store NOI, at 5.6%, followed by Global Self Storage with a 2.7% decline. Public Storage, the largest self-storage REIT, reported a 1.6% decline in same-store NOI, while CubeSmart and Extra Space Storage Inc. reported drops of 1.2% and 1.1%, respectively.

Despite the decline in same-store NOI for the self-storage sector across the past few quarters, earnings within the sector increased significantly during 2021 and 2022, with funds from operations per share for the sector still up significantly for all REITs in the sector compared to the end of 2019, prior to the COVID-19 pandemic.

In the REIT's second-quarter earnings call, Public Storage Chief Investment Officer and CFO H. Thomas Boyle attributed its drop in same-store NOI to a decline in both occupancy and rent, with the rental decline primarily driven by lower market move-in rents.

Extra Space Storage CFO P. Scott Stubbs said on the REIT's second-quarter earnings call that existing customers within the REIT's self-storage platform have remained resilient and have showed strength; however, the larger headwind has been related to leasing space to new customers, who have been price sensitive in the current economic environment.

Current headwinds within the sector has driven same-store revenue to be largely flat for the past three quarters. However, rental expense has continued to grow, driving down NOI.

Self-storage REIT index outperformed broader markets since 2019

The Dow Jones US Real Estate Self Storage Index nearly doubled, up 94.5% since the end of 2019. Outperforming both the more-broad Dow Jones Equity All REIT Index as well as the S&P 500.

For comparison, the S&P 500 was up 69.3% during the same period, while the Dow Jones Equity All REIT Index rose 6.3%.