Institutional capital continues to pursue self-storage deals, but the criteria for approval have shifted significantly since 2021. Buyers are no longer underwriting on hope; they are underwriting today’s numbers, and this change is reshaping which markets, assets, and sellers get a deal done, according to Tom de Jong, Executive Vice President at Colliers and founding principal of the De Jong Self Storage Team. De Jong has closed self-storage transactions in 32 states and observes the real-time rebuilding of institutional buy boxes.
Underwriting has shifted from growth to reality. In 2021, buyers would underwrite five to seven percent annual rent growth and still hit return targets by year three. That math no longer works. De Jong says institutional buyers are now underwriting 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.
Location criteria are tightening around barriers to entry. Markets with the highest barriers to entry, such as Los Angeles, Boston, and New York, are receiving the most institutional attention. Seattle has also seen a recent uptick in transaction interest, and Portland has been consistently active. Conversely, markets with 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 pay close attention to whether a market has multiple new facilities still in the planning pipeline.
A counterintuitive trend in pricing is emerging: mom-and-pop-operated facilities are seeing the most aggressive offers on a cap rate basis. De Jong notes that buyers see management upside in these assets. A facility run informally for years, without professional or institutional management or revenue tools, represents an opportunity for a buyer to step in and improve performance quickly. Facilities that are already institutionally managed do not see the same aggressive pricing; they are well-run, but there is less room to add value through better management, so buyers treat them more as yield plays than upside plays.
Multiple capital buckets mean multiple sets of rules. Most large institutional buyers 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 is pulling from determines what they will and will not consider. 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 are facing a tougher audience.
