California, August 12, 2025
News Summary
The self-storage sector remains appealing to lenders despite a cautious lending environment, with over 94% indicating consistent funding willingness. A recent survey by DXD Capital shows lenders are tightening underwriting processes due to rising interest rates and market pressures, affecting construction lending. While many lenders maintain stability in loan performance, they express concerns over absorption risks and macroeconomic factors. In Canada, the self-storage market faces growth, driven by demographic trends, but immigration policy changes may influence future demand.
Lenders Show Stable Sentiment in Self-Storage Sector Despite Conservative Approach
The self-storage sector continues to garner significant lending interest, according to the latest report from DXD Capital, revealing that most lenders’ willingness to fund self-storage projects has not changed from the previous year. In a climate marked by increasing interest rates and economic pressures, the results from the 2025 lender survey showcase a remarkable level of stability amid cautious lending practices.
Over 94% of lenders surveyed expressed that their appetite for self-storage lending remains consistent compared to the prior year. While recent years saw a surge in generous lending practices, shifts in market conditions have compelled lenders to adopt a more cautious approach, tightening underwriting processes and enhancing risk management. This shift is largely attributed to interest rate hikes that have led to some level of asset distress, particularly in construction lending.
Subdued Construction Lending Expected
The current lending environment reflects a slower pace for construction funding within the self-storage sector, with expectations that this trend will persist over the coming one to two years. Although the self-storage market has shown resilience, nearly three-quarters of lenders have not restructured or extended loans in the past year, indicating a degree of stability in loan performance within the sector.
Interestingly, most lenders allocate less than 25% of their total commercial real estate (CRE) loan portfolios to self-storage, suggesting it’s a niche area within the broader real estate market. Almost half of the lenders believe that self-storage is performing similarly to other CRE sectors, while about a quarter perceive it as underperforming.
Key Underwriting Concerns
Lenders’ primary concern in underwriting self-storage loans revolves around absorption risk during the lease-up phase. This is followed by worries regarding oversupply, the capabilities of sponsors, and rising construction costs. Additional macroeconomic factors further complicate the lending landscape, with many lenders expressing concerns about the potential for a recession, a softening CRE market, and regulatory challenges. Regional bank pullbacks are also highlighted as an obstacle, contributing to a cautious overall lending atmosphere.
Types of Loans Lenders are Focused On
The survey findings indicate that lenders are primarily focused on acquisition loans, with 94% looking to fund such projects. Moreover, 88% are interested in backing ground-up construction, while 71% are engaged in refinancing activities. A smaller percentage is looking into bridge or transitional loans, alongside those converting properties, such as retail to self-storage.
One recent development includes a $27.2 million senior secured loan provided by White Oak Real Estate Capital for 1784 Holdings. This funding is aimed at the development of a self-storage facility in Garden Grove, California, designed to offer climate-controlled units.
Global Market Trends in Self-Storage
Shifting focus to international markets, Canada’s self-storage sector is poised for growth, with projections indicating a doubling of activity year-over-year by 2026. This expected surge is driven by demographic trends, including an aging population and heightened migration. Key factors, such as older adults downsizing and increased mobility of migrants, coupled with affordability pressures resulting in smaller living spaces, are all contributing to rising demand for self-storage solutions in Canada. However, recent changes to Canadian immigration policy that impose stricter limits may influence future supply and demand dynamics within the sector.
Frequently Asked Questions (FAQ)
What is the current lending appetite for the self-storage sector?
According to the latest survey, over 94% of lenders reported no change in their lending appetite for the self-storage sector compared to the previous year.
What are the main concerns for lenders in self-storage lending?
Lenders are primarily concerned about absorption risk during lease-up, oversupply, sponsor capabilities, and rising construction costs.
How has the lending landscape changed in recent years?
The lending landscape has shifted towards more conservative practices due to increased interest rates and asset distress, moving away from the generous lending seen in 2021 and 2022.
What is projected for Canada’s self-storage market?
Canada’s self-storage market is expected to see activity double year-over-year in 2026, driven by demographic changes and increased demand for storage solutions.
Deeper Dive: News & Info About This Topic
Additional Resources
- GlobeSt: Self-Storage Lenders Keep the Faith Amid Shifting Underwriting Standards
- Wikipedia: Self-storage
- MultiHousing News: The Evolution of Self-Storage Lending
- Google Search: Self-storage loans
- Inside Self Storage: DXD Capital Releases Lender Survey Report
- Encyclopedia Britannica: Self-storage
- Mortgage Professional: Supply of Self-Storage Space Set to Surge in Canada
- Google News: Self-storage market
- Commercial Observer: Affinius Capital’s Involvement in Self-Storage
Author: Construction FL News
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