Institutional capital continues to flow into self-storage, but the criteria for acquisitions have shifted dramatically since 2021. Buyers are no longer underwriting on hope; they are underwriting today's numbers, a change that is reshaping which markets, assets, and sellers get deals done, according to Tom de Jong, Executive Vice President at Colliers and founding principal of the De Jong Self Storage Team, who has closed transactions in 32 states.
Back in 2021, buyers would underwrite five to seven percent annual rent growth and still hit their return targets by year three. That math no longer works, de Jong says. Institutional buyers now underwrite at today's achieved rents, often with flat projections, building their return case on what a property is actually collecting rather than what it might collect someday. This single change has forced sellers to recalibrate. A property that looked like a strong sale in 2022 based on projected rent growth may not clear the same bar today unless the in-place income already supports it.
This shift in underwriting standards is also reshaping which markets institutional buyers consider. The largest markets with the highest barriers to entry—such as Los Angeles, Boston, and New York—are attracting the most institutional attention. Seattle has seen a recent uptick in transaction interest, and Portland remains consistently active. Conversely, markets that experienced heavy new supply, including Miami, Austin, Nashville, and Las Vegas, have seen institutional capital pull back. Buyers want markets where new competition is unlikely to undercut rents again, and they monitor whether a market has multiple new facilities still in the planning pipeline.
One counterintuitive trend is where aggressive pricing is showing up. De Jong notes that mom-and-pop-operated facilities are receiving the most aggressive offers on a cap rate basis because buyers see management upside. A facility run informally for years, without professional management or revenue tools, represents an opportunity to improve performance quickly. Facilities that are already institutionally managed do not see the same aggressive pricing; they are well-run but offer less room to add value through management, so buyers treat them more as yield plays than upside plays.
Buyer behavior also varies depending on which part of an institution's capital is doing the buying. Most large institutional buyers work from multiple playbooks, de Jong points out. They typically have several funds: a core or core-plus fund focused on stabilized assets in established markets, and a value-add or development fund willing to take on lease-up risk for a higher return. Which bucket a buyer pulls from determines what they will and will not consider, so the same buyer might pass on a deal for one fund and pursue it aggressively for another.
For owners considering a sale, the practical takeaway is that achieved income now carries more weight than a pro forma. Properties with real, current cash flow in strong barrier-to-entry markets are seeing the most competitive interest, while properties leaning on projected growth to justify their price face a tougher audience. This article is based on information provided by the expert source cited above and is intended for general informational purposes only.
