An overview of a self-storage facility designed to meet diverse storage needs.
California, August 12, 2025
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.
The self-storage sector remains a focal point for lenders even as the lending environment has adopted a more conservative approach. According to data from DXD Capital’s 2025 lender survey, a staggering 94% of lenders indicated that their appetite for self-storage lending has not changed since last year. This signals a resilient enthusiasm for the sector amid the challenges posed by rising interest rates and overall economic uncertainty.
Lenders have reported continued lending activity in the self-storage sector despite the backdrop of a tightening lending climate. While there has been a shift from the generous practices of lending seen in 2021 and 2022, this year has ushered in a more cautious stance aimed at effectively managing risk through stringent underwriting processes and exposure controls.
Construction lending, however, is anticipated to remain subdued over the next one to two years, particularly within self-storage. The survey revealed that nearly three-quarters of lenders have not restructured or extended loans in the past year, suggesting that overall loan performance remains stable. Most lenders allocate less than 25% of their total commercial real estate (CRE) loan portfolios to the self-storage sector, indicating a focused investment strategy.
Interestingly, the survey also showed that nearly half of the lenders consider the performance of self-storage to be comparable to other sectors within CRE, while approximately one-quarter view it as underperforming. This mixed sentiment illustrates the complexity of market dynamics as lenders navigate various risk factors.
Key underwriting concerns for lenders include absorption risk during lease-up phases, with attention also given to issues like oversupply, sponsor capabilities, and escalating construction costs. Additional macroeconomic and regulatory factors that are worrying lenders include the ongoing rise in interest rates, the softening of the CRE market, and risks associated with a potential recession.
The survey results also highlighted the impact of regional bank pullbacks, as they pose significant challenges in the lending landscape. In-depth analysis reveals that 94% of the respondents are prioritizing acquisition loans, 88% on ground-up construction, 71% on refinancing, 35% on bridge or transitional loans, and 18% on conversion loans such as transforming retail spaces into storage facilities.
In a notable development, White Oak Real Estate Capital recently provided a $27.2 million senior secured loan to 1784 Holdings for the construction of a new self-storage facility in Garden Grove, California. This facility is set to offer climate-controlled units, catering to rising demand for quality storage options in urban settings.
Looking at the Canadian market, projections indicate that the self-storage industry in Canada may see its activity double year-over-year by 2026. This growth is driven by demographic trends such as an aging population and increasing migration. Factors like older adults downsizing and the mobility of international migrants are compelling demand, alongside affordability pressures leading to smaller living conditions.
However, recent changes to Canadian immigration policy, which impose stricter limits, could impact future supply and demand dynamics in the self-storage sector, suggesting a nuanced landscape ahead.
Lender sentiment remains stable for self-storage lending, with 94% of lenders reporting no change from the previous year, despite a more conservative lending approach.
Construction lending in the self-storage sector is expected to remain subdued over the next one to two years due to a more cautious lending environment.
Lenders’ primary concerns include absorption risk during lease-ups, addressing oversupply, evaluating sponsor capabilities, and rising construction costs.
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