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 latest data from DXD Capital’s 2025 lender survey indicates that lenders continue to exhibit a stable appetite for self-storage lending, with most reporting no significant changes compared to last year. Despite a shift towards a more cautious lending climate, self-storage remains a favored choice for lenders.
Even though the lending landscape has tightened due to factors like interest rate hikes leading to asset distress, lenders actively engage in managing risk through more conservative practices. This marks a departure from the more generous lending trends observed in 2021 and 2022. As a result, construction lending in the self-storage sector is expected to stay subdued for the next one to two years.
According to the survey, a remarkable 94% of respondents indicated that their appetite for self-storage lending remains stable compared to the previous year. This suggests a robust level of confidence in the sector, as nearly three-quarters of lenders have not felt it necessary to restructure or extend loans in the past year, pointing to stable loan performance.
Most lenders allocate less than 25% of their total commercial real estate (CRE) loan portfolios to self-storage, highlighting that while it’s a popular choice, it is not the dominant segment. Interestingly, nearly half of surveyed lenders view the performance of self-storage as comparable to other CRE sectors, while approximately one-quarter see it underperforming.
The key concerns for lenders regarding underwriting involve absorption risk during the lease-up phase. Other important factors include oversupply, the capabilities of the sponsors, and the costs associated with construction. This cautious outlook is compounded by macroeconomic and regulatory challenges, such as ongoing interest rate rises, softening in the CRE market, and potential risks associated with economic recession.
Of note is the pullback by regional banks, which has been identified as a significant factor influencing the lending environment in the self-storage sector. In light of these trends, lenders remain focused on various types of loans: about 94% are prioritizing acquisition loans, 88% ground-up construction, 71% refinancing, and smaller percentages on bridge or transitional loans (35%) and conversion loans from retail to storage (18%).
On a promising note, White Oak Real Estate Capital has provided a $27.2 million senior secured loan to 1784 Holdings for the development of a self-storage facility in Garden Grove, California, which promises to feature climate-controlled units. Such developments show that there is still active capital flowing into this sector.
Looking north, the self-storage market in Canada is projected to experience exponential growth, with activity expected to double year-over-year by 2026. This growth is driven by demographics, including an aging population and increased migration. Factors fueling self-storage demand include older adults downsizing, the mobility of migrants, and affordability pressures that lead to smaller living spaces.
However, recent changes in Canadian immigration policy imposing stricter limits might influence future supply and demand in the self-storage sector in that country.
Overall, the self-storage sector still attracts significant lending activity, as lenders prioritize risk management while navigating a conservative lending landscape. The future holds potential for growth amidst challenges, particularly in trending markets like Canada.
Most lenders report stable lending appetite for self-storage, with over 94% indicating no change from the previous year.
The primary concerns include absorption risk during lease-up, oversupply, sponsor capabilities, and construction costs.
The self-storage market in Canada is poised for significant growth, with expectations to double activity year-over-year by 2026 due to demographic trends.
Lenders are mainly focusing on acquisition loans, ground-up construction, and refinancing, among others.
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