How Interest Rates Actually Affect Self Storage Facility Values

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Key Takeaways

• Interest rates influence self storage values primarily through the buyer’s cost of capital — when borrowing gets cheaper, buyers can pay more and still hit their return targets.
• The relationship between interest rates and cap rates is real but not mechanical. Cap rates don’t move in lockstep with rates — supply/demand, capital flows, and market fundamentals all mediate the relationship.
• Self storage cap rates expanded roughly 80–100 basis points from the 2021–2022 lows as rates rose, but they’ve stabilized around 5.8% nationally in 2025–2026 despite rates remaining elevated.
• The current environment — Fed Funds at 4.25–4.50%, 10-Year Treasury near 4.0% — is unlikely to produce dramatic cap rate compression in 2026. But it’s also not pushing values lower.
• For sellers in 2026, the math works: institutional buyers have access to favorable financing, transaction volume is healthy ($2.85B in H1 2025), and capital is flowing into self storage from new institutional sources.
• Waiting for “lower rates” to sell is a gamble. Rate cuts may not translate to proportionally higher sale prices — and the operating environment may deteriorate while you wait.

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Every self storage owner we talk to has the same question: “Should I wait for rates to come down before I sell?”

It’s a reasonable question. Interest rates dominate the financial news cycle. Every Fed meeting triggers headlines about commercial real estate values. And the logic seems obvious: lower rates mean cheaper borrowing, which means buyers can pay more, which means higher sale prices. So why not wait?

Because the relationship between interest rates and self storage values is more nuanced than the headline version. And in some scenarios, waiting for rate cuts actually costs you money.

Here’s how interest rates really affect self storage facility values — with actual numbers, historical context, and practical implications for owners considering a sale in 2026.

The Mechanics: How Interest Rates Flow Into Property Values

Interest rates don’t directly determine your facility’s value. They influence it through three interconnected channels:

Channel 1: The Buyer’s Cost of Capital

This is the most direct and significant channel. When a buyer finances the acquisition of your facility, their borrowing cost directly affects how much they can pay.

A simplified example:

Let’s say a buyer is targeting a 12% cash-on-cash return (a common benchmark for leveraged self storage acquisitions). They’re putting 30% down and financing 70%.

Scenario A: Borrowing at 5.5%

• Purchase price: $4,000,000
• Down payment (30%): $1,200,000
• Loan amount (70%): $2,800,000
• Annual debt service at 5.5% (25-year amortization): ~$204,000
• Required NOI to hit 12% cash-on-cash: ~$348,000
• Implied cap rate: 8.7%

Wait — an 8.7% cap rate? That seems high for self storage. And it is. This is where the “total return” picture comes in. The buyer isn’t just buying current cash flow. They’re buying:

• Rent growth (storage rents have grown at 3–5% annually over long periods)
• Occupancy upside (if the facility isn’t fully stabilized)
• Expansion potential
• Long-term appreciation

When buyers factor in all-in returns over a 5–10 year hold, they can accept a lower going-in cap rate and still hit their total return targets. That’s why institutional self storage cap rates are 5.0–6.5%, not 8–9%.

Now change the rate:

Scenario B: Borrowing at 7.0%

• Same purchase price: $4,000,000
• Same down payment: $1,200,000
• Same loan amount: $2,800,000
• Annual debt service at 7.0%: ~$228,000
• Required NOI to hit 12% cash-on-cash: ~$372,000
• Implied cap rate: 9.3%

That 150-basis-point increase in the borrowing rate raised the buyer’s required cap rate by about 60 basis points. In other words, the buyer needs to either pay less for the same facility or find a facility with higher NOI.

What this means in dollars: On a facility generating $250,000 in NOI, the difference between a 5.5% cap rate and a 6.1% cap rate (which roughly corresponds to that rate increase) is:

• At 5.5%: $4,545,455
• At 6.1%: $4,098,361
• Difference: $447,094

That’s the real-world impact of interest rate changes on property values. Not theoretical. Not abstract. Nearly half a million dollars on a mid-size facility.

Channel 2: Cap Rate Expectations

Cap rates reflect the market’s required yield for a given level of risk. Interest rates are a major input — but not the only one.

The cap rate equation (simplified):

Cap Rate ≈ Risk-Free Rate + Risk Premium + Illiquidity Premium

• Risk-free rate: Typically proxied by the 10-Year Treasury yield (~4.0% in early 2026)
• Risk premium: Compensation for the specific risks of self storage (tenant default, market cycles, operational complexity) — typically 100–200 basis points
• Illiquidity premium: Compensation for the fact that real estate can’t be sold as quickly as stocks or bonds — typically 50–100 basis points

When the risk-free rate rises (Treasury yields go up), cap rates should theoretically expand. When the risk-free rate falls, cap rates should compress.

But here’s the critical nuance: the risk premium and illiquidity premium aren’t fixed. When institutional capital floods into self storage — as it has over the past 5 years — the risk premium compresses because buyers view the asset class as lower-risk. When capital flows out, the risk premium expands.

This is why cap rates don’t move mechanically with interest rates. Capital flows can offset rate movements — and in self storage, they frequently do.

Channel 3: Operating Fundamentals

Interest rates also affect the operating environment of your facility, which indirectly influences its value:

Housing market effects. Higher mortgage rates freeze the housing market. When people can’t buy homes (or can’t sell their current homes), they stay put — which reduces moving-related storage demand. But it simultaneously increases “home extension” storage demand as people living in smaller spaces longer need external storage. The net effect on storage demand has been roughly neutral in the current cycle.

Consumer spending. Higher rates generally slow consumer spending, which can affect storage demand (people consolidating, downsizing, or choosing not to rent storage). However, self storage has historically demonstrated recession resilience — demand tends to hold up even during economic downturns because life events (moves, divorces, downsizing, death) happen regardless of the economy.

New supply. This is the most important indirect channel. Higher interest rates and tighter lending standards directly reduce new self storage development. Construction financing becomes more expensive, development yields get compressed, and projects get shelved or delayed.

The numbers tell the story: the planned self storage development pipeline declined 12.8% year-over-year as of early 2026, and the prospective pipeline (projects in early planning stages) dropped 21.7% — down 40%+ from its 2023 peak. Average construction completion time has stretched to 431 days (14.4 months), the longest on record.

Why this matters for sellers: Reduced new supply protects existing facilities from competition. Every project that doesn’t get built is one less competitor for your tenants. This supply constraint supports occupancy and rents — and therefore supports your facility’s value — even as interest rates remain elevated.

Historical Context: What Actually Happened

Theory is useful. History is more useful. Let’s look at what actually happened to self storage values during the recent interest rate cycle.

2019: The Pre-Pandemic Baseline

• Fed Funds Rate: 1.50–1.75%
• 10-Year Treasury: ~1.8%
• Self Storage Cap Rates: 5.5–7.0% (stabilized, depending on class and market)
• Average Price/SF: ~$110–$130

The market was healthy and stable. Cap rates had been gradually compressing for years as institutional capital entered the sector. Values were firm but not frothy.

2020–2021: The COVID Compression

• Fed Funds Rate: 0.00–0.25%
• 10-Year Treasury: ~1.0–1.5%
• Self Storage Cap Rates: 4.0–5.5% (historic lows)
• Average Price/SF: Rose sharply, exceeding $170 by Q1 2023

Three forces converged:

1. Near-zero interest rates made real estate an irresistible alternative to bonds
2. Self storage operating fundamentals exploded — occupancy hit record highs, rents surged 15–20%+
3. Institutional capital flooded the sector — PE funds, REITs, and family offices competed aggressively for assets

Cap rates compressed by 100–200 basis points. A facility that would have traded at a 6.5% cap in 2019 was trading at 4.5–5.0% by mid-2021.

Transaction volume tells the story: Approximately $50 billion in self storage transactions occurred between 2020 and 2022 — a pace that far exceeded any prior period.

2022–2023: The Rate Shock

• Fed Funds Rate: Rose from 0.25% to 5.25–5.50%
• 10-Year Treasury: Rose from ~1.5% to ~4.5%
• Self Storage Cap Rates: Expanded to 5.0–6.5%
• Average Price/SF: Declined from $174 peak (Q1 2023) to ~$152 average over subsequent quarters

The most aggressive rate hiking cycle in 40 years hit commercial real estate hard. But self storage held up significantly better than office, retail, or multifamily:

• Cap rate expansion: 80–100 basis points from trough to stabilization (vs. 150–300+ bps for office)
• Value decline: ~12% from peak (vs. 30–50% for urban office)
• Transaction volume: Dropped but remained active. The market didn’t freeze.

Why self storage outperformed: The asset class’s fundamental characteristics — short-term leases that reprice quickly, low tenant improvement costs, recession-resilient demand, and strong institutional demand — cushioned the blow. Buyers didn’t flee self storage. They recalibrated their pricing.

2024–2025: Stabilization

• Fed Funds Rate: Three cuts in late 2025, settling at 4.25–4.50%
• 10-Year Treasury: Hovering near 4.0%
• Self Storage Cap Rates: Stabilized at ~5.8% nationally (Cushman & Wakefield, Q2 2025)
• Average Price/SF: ~$159 (Q2 2025), stabilizing after the post-peak decline

The market found its footing. Key indicators:

• 56% of investors expected cap rates to remain unchanged through 2025
• 65% of investors expected to be net buyers in the coming year
• Transaction volume: $2.85 billion in H1 2025 — in line with pre-pandemic levels
• H2 2025 saw a 62% year-over-year jump in transaction activity

Capital continued flowing in: Public Storage acquired $946 million in assets during 2025. Extra Space guided to $900 million. CubeSmart launched a $250 million joint venture with CBRE Investment Management. A sovereign wealth fund provided 80% of the equity in a $1.03 billion NYC portfolio acquisition.

2026: Where We Are Now

• Fed Funds Rate: 4.25–4.50% (market pricing 2–3 additional cuts)
• 10-Year Treasury: ~4.0% (projected range 3.75–4.25% for the year)
• Self Storage Cap Rates: ~5.8% stabilized national average; 5.0–5.5% for Class A in primary markets
• Total industry value: ~$432 billion (TractIQ, February 2026)

The rate environment is stable, with modest easing expected. Commercial lending conditions have improved — 94.1% of lenders surveyed by DXD Capital remain active in self storage. The halt of quantitative tightening in late 2025 and the resumption of reserve management purchases have been described as “the first meaningful improvement in capital availability since 2021.”

The “Spread” That Actually Matters

Professional investors don’t just look at cap rates or interest rates in isolation. They look at the spread between cap rates and borrowing costs — because that spread determines whether a leveraged acquisition creates positive leverage (debt enhances returns) or negative leverage (debt reduces returns).

Positive Leverage vs. Negative Leverage

Positive leverage occurs when the cap rate exceeds the borrowing cost. In this scenario, adding debt increases the equity return above the unleveraged cap rate.

Negative leverage occurs when the borrowing cost exceeds the cap rate. In this scenario, every dollar of debt actually reduces the equity return below the unleveraged cap rate.

Where we are in early 2026:

• Self storage cap rates: 5.0–6.5% (depending on class and market)
• Borrowing costs: 5.0–6.5% (depending on loan type and terms)
• Spread: Approximately zero to slightly negative for many deals

This is the challenging reality of the current market. For a Class A facility trading at a 5.0% cap rate with a buyer borrowing at 5.5%, the leverage is slightly negative on a day-one basis. The buyer is relying on rent growth and value creation to generate returns — not leverage.

But here’s why deals are still closing:

1. Institutional buyers have lower borrowing costs. Public Storage’s weighted average debt rate is 3.2% with a 6.3-year average term. REITs and large PE funds access capital at rates well below what’s available to individual buyers. At 3.2% borrowing against a 5.0% cap rate, leverage is significantly positive.

2. Buyers are underwriting to future rates. If the Fed delivers 2–3 more rate cuts in 2026 and the 10-Year Treasury drifts toward 3.5%, borrowing costs will decline. Buyers who lock in acquisitions now expect to refinance at lower rates within 2–3 years.

3. Growth expectations matter. Self storage street rates turned positive (+0.3% year-over-year) in late 2025 after nearly three years of declines. Climate-controlled units saw +0.9% growth. Move-in rates at major REITs turned positive for the first time since early 2022. Buyers see an inflection point in the revenue cycle and are pricing in recovery.

4. New supply is declining. The planned pipeline is down 12.8% year-over-year. Supply constraints support future rent growth and occupancy, which improves future returns even if day-one spreads are tight.

What This Means for Sellers in 2026

Here’s the practical framework for thinking about interest rates and your sale decision:

The “Wait for Lower Rates” Argument

The bull case for waiting: If the Fed cuts rates 2–3 more times in 2026 and the 10-Year Treasury drops to 3.5%, borrowing costs decline, spreads improve, more buyers compete, and cap rates compress — potentially by 25–50 basis points. On a facility generating $250,000 in NOI, a 25-basis-point cap rate compression from 5.75% to 5.50% increases value by approximately $200,000.

Sounds compelling. But consider the risks:

1. Rates may not fall as expected. Markets have been pricing in rate cuts that don’t always materialize. Inflation persistence, fiscal spending, or geopolitical events could keep rates elevated or even push them higher.

2. Your operating fundamentals may deteriorate while you wait. If your occupancy drops from 90% to 85% or your revenue declines while you’re waiting for rate relief, the NOI decline more than offsets any cap rate improvement. A $25,000 drop in NOI at a 5.75% cap rate reduces your value by $435,000 — more than double the benefit of a 25-basis-point cap rate compression.

3. New supply could increase. Lower rates don’t just help buyers — they also restart development. If rate cuts reignite construction in your market, the resulting new supply could pressure your occupancy and rents exactly when you’re trying to sell at a higher price.

4. Cap rates don’t always follow rates. Capital flows, investor sentiment, and sector fundamentals can keep cap rates stable even as rates decline — or push them wider even as rates fall. In 2024, the 10-Year Treasury was volatile, but self storage cap rates barely moved.

The “Sell Now” Argument

The bull case for selling in the current environment:

1. Buyer demand is strong and growing. Public Storage, Extra Space, CubeSmart, PE firms, sovereign wealth funds, family offices, and regional operators are all actively acquiring. The buyer pool has never been deeper.

2. Capital availability has improved. The end of quantitative tightening and the resumption of Fed balance sheet activity have meaningfully improved CRE lending conditions. 94.1% of lenders remain active in self storage.

3. Transaction volume is healthy. $2.85 billion in H1 2025 with a 62% year-over-year jump in H2. Deals are closing at current pricing.

4. The rate environment is stable. No one is panicking about rate hikes. The market has digested the 2022–2023 rate shock and found equilibrium. Stability in rates means stability in cap rates, which means predictable pricing for sellers.

5. New supply is declining. The construction pipeline is shrinking, which protects your competitive position. But if rates drop significantly, that pipeline could restart — and you lose the supply-constrained advantage.

6. Operating fundamentals are at or near bottom. Street rates have turned positive. Move-in rates at major REITs are positive for the first time since 2022. CubeSmart’s CEO describes the market as experiencing “slow, steady stabilization.” If you sell now, you’re selling at the bottom of the revenue cycle — which means your NOI represents a conservative floor, not a cyclical peak.

The Scenario Analysis

Let’s model three potential scenarios for a facility generating $250,000 in NOI today:

Scenario 1: Sell Now (Current Environment)

• Cap rate: 5.75%
• Sale price: $4,347,826
• Certainty: High (buyers are active, financing available)
• Time to close: 4–6 months

Scenario 2: Wait 12 Months, Rates Drop 75 bps

• Assumption: NOI stays flat at $250,000, cap rate compresses 25 bps to 5.50%
• Sale price: $4,545,455
• Gain from waiting: $197,629
• Risk: NOI may not stay flat. Supply could increase. Cap rates may not compress as expected.

Scenario 3: Wait 12 Months, Operating Fundamentals Deteriorate

• Assumption: NOI declines 5% to $237,500 (occupancy softens, expenses rise), cap rate flat at 5.75%
• Sale price: $4,130,435
• Loss from waiting: $(217,391) vs. selling now

The difference between the best-case wait scenario and the worst-case wait scenario is $415,000 — and the worst case is arguably more likely than the best case for many markets and facility types.

This is the math that matters. Waiting for rate cuts is a bet on multiple things going right simultaneously: rates actually falling, cap rates actually compressing in response, your NOI holding steady or improving, and no new competitive supply entering your market. Selling now requires only one thing: a willing buyer at current market pricing. And there are plenty of those.

What History Teaches Us About Rate Cycles and Selling Windows

Looking back at the last 20 years of self storage transactions, a pattern emerges:

The best time to sell isn’t when rates are lowest. The best time to sell is when capital flows, operating fundamentals, and buyer appetite converge favorably — regardless of where rates happen to be.

• 2006–2007: Rates were 5.0–5.25%. Self storage values were strong because capital was abundant and fundamentals were good.
• 2010–2011: Rates were near zero. But self storage values were depressed because the economy was weak and capital was cautious.
• 2020–2021: Rates were near zero AND fundamentals were exceptional. Values soared.
• 2025–2026: Rates are elevated. But capital is abundant, institutional interest is at all-time highs, new supply is declining, and operating fundamentals are stabilizing.

The current environment doesn’t look like 2006 (pre-crisis froth) or 2010 (post-crisis depression). It looks like a healthy, functioning market where educated buyers and educated sellers are transacting at fair prices — with strong institutional capital flows providing a floor under values.

Practical Interest Rate Guidance for 2026 Sellers

If You’re Selling a Class A Facility in a Primary Market

Your buyer is likely a REIT, large PE fund, or sovereign-backed platform. These buyers have access to institutional-grade debt at rates well below what’s available in the conventional market. The rate environment matters less for your pricing because your buyers aren’t rate-sensitive — they’re return-sensitive, and they’re underwriting to long-term revenue growth in supply-constrained markets.

Expect: 5.0–5.5% cap rates. Interest rate movements of 25–50 bps will have minimal impact on your pricing.

If You’re Selling a Class B Facility in a Secondary Market

Your buyer pool includes regional operators, smaller PE platforms, and some institutional players. These buyers are more rate-sensitive because they’re typically using bank or CMBS financing. But the supply-demand picture in many secondary markets is favorable, and buyer appetite remains strong.

Expect: 5.5–6.5% cap rates. Interest rate movements may have a modest impact (15–30 bps on cap rate) over the next 12 months.

If You’re Selling a Class C Facility in a Tertiary Market

Your buyer is likely a private investor, first-time operator, or 1031 exchange buyer. These buyers are most sensitive to interest rates because they’re borrowing at the highest rates and have the least margin for error.

Expect: 6.5–7.5%+ cap rates. Interest rate movements could have a more meaningful impact (25–50 bps on cap rate) — but these markets also have the most idiosyncratic risk, which means local factors (competition, population trends, economic health) often matter more than macro rate trends.

The Question Behind the Question

When an owner asks us “Should I wait for rates to come down?”, they’re often really asking: “Is now a good time to sell?”

Here’s our honest answer: For most self storage owners in 2026, the conditions for a successful sale are favorable. The buyer pool is deep. Capital is available. Transaction volume is healthy. Operating fundamentals are stabilizing. New supply is declining. And cap rates have found a level that both buyers and sellers can live with.

Could conditions improve in 12–18 months? Sure. They could also deteriorate. What we know right now is that there are institutional buyers actively deploying billions of dollars into self storage. We know that sovereign wealth capital has entered the sector for the first time. We know that REITs acquired nearly $2 billion in assets in 2025 alone.

The interest rate environment is just one variable in a complex equation. And in 2026, it’s not the most important one.

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