This post is from Box Pro's "3 Things" newsletter.
A brief newsletter from Box Pro in which we share 3 things in or about the world of self-storage and all the images are AI-generated.
“a picture of everyone in america stuck at home and not moving cause houses are too expensive”
This update revolves around all things rates—cap rates, interest rates, and moving rates. Maybe I’ll pick a more fun topic for next time.
Cap rates stay consistent at 6.1%
According to Colliers latest quarterly self storage report, average cap rates for transactions in the second quarter of this year average 6.10%, up from 5.95% in Q4 of 2023—a number which is likely skewed by the two large portfolio transactions by Extra Space and Public Storage. Interestingly, the second quarter of 2023 also had average cap rates of 6.10%, demonstrating that cap rates are finding a new normal in this interest rate environment. The fact that the self storage industry remains in a negative leverage situation (where interest rates are higher than cap rates) shows that future interest rate cuts are likely baked into current cap rates.
Rate cuts happening for reals?
Inflation continues to slow, the job market appears to be softening, and consumer sentiment is down slightly. While these items bode well for rate cuts, the stock market continues to do well, gas prices are up, and there is still, well, inflation. Rate cuts are still expected this year, but the mixed messaging from the market may push those cuts into next year. Oh yeah, and it’s an election year.
If rate cuts do happen, expect a boom in self storage rates
Moving is the lifeblood of the self storage industry. With the historically low housing inventory, high home prices, and relatively high interest rates, moving has slowed down dramatically in the last couple years, as evidenced by the decline in self storage rates. If interest rates come down and creates more home moving activity, expect to see an increase in demand for self storage, pushing rates up.