Investors are naturally drawn to self-storage due to its steady demand, reliable earnings, and low risk. But the terms of the game have shifted now that interest rates are increasing.
Why It Matters
Developers are shelling out more to fund new projects as a consequence of higher interest rates. Some projects don't pencil out, and the once straightforward calculation on returns seems much tighter. Development in certain areas is being delayed down by this, especially in markets that are smaller or more aggressive.
The Upside
Existing infrastructures have fewer rivals when there is less new construction. Over the years to come, that could end up in higher occupancy and pricing authority for owners and operators who currently operate in the market.
What Investors Should Consider
Investors can opt for value-added potential, stabilized structures, or partnerships with experienced operators that understands how to get more out of present assets instead of jumping straight into fresh construction. The strongest advantages are likely to go to those who have access to long-term, fixed-rate loans.
In general, rising rates may make life challenging for builders, but they additionally offer opportunities for long-term investors.