Self-Storage Projects See Depressed Returns After Construction Boom In Greater Philly

A post-pandemic supply glut in greater Philadelphia’s self-storage sector has collided with cooling demand from a frozen housing market to hurt investor returns. 

Developers built 5.4M SF of self-storage space in the region between 2023 and 2025, making Philly the No. 6 most active U.S. market for construction in the sector, according to data provided by Yardi Matrix. Another 2.8M SF is projected to deliver between this year and 2028, bringing the total built since 2020 to more than 12M SF. 

This construction boom occurred in part because Philly had a relative undersupply of self-storage space before the pandemic, and developers still feel bullish on the market long term. But for now, it is going through growing pains. 

“Everything is slower than we would have planned for three or four years ago,” said Mequity Cos. CEO Bill Marsh, whose Georgia-based company owns 309K SF across three self-storage projects in greater Philly.

The new supply isn’t spread evenly across the region. The suburbs already account for 73% of its self-storage space, and they are expected to see 935K SF of completions this year. That is equal to 3.2% of suburban Philly’s standing stock — far above the 2.0% in Philly proper and 2.4% expected nationwide this year. 

This has created some hiccups in the leasing process.

“What we’re seeing right now is occupancy shot up post-Covid, then has come back down,” said City Line Capital CEO Rick Schontz, whose Bala Cynwyd-based self-storage investment firm owns several suburban Philly properties.

That is what happened at a King of Prussia Storage Sense facility the firm bought in 2020.

The property at 530 S. Henderson Road, built in the 1980s, was about 50% occupied at the time of the acquisition, Schontz said. After investing in renovations, City Line brought occupancy to the high 90s. It has since dropped to 86%.

The rest of the firm’s Philly-area portfolio is seeing similar occupancy in the high 80s, Schontz said. He considers a property stable when occupancy is above 90%.

While Schontz is seeing similar occupancy at City Line’s other East Coast properties, he said the metro Philly properties that make up about 5% of City Line’s portfolio have seen lower revenue growth.

He said the Philly-area properties recorded 1.5% year-over-year revenue increases, while City Line’s overall East Coast portfolio saw 2.9% growth.

While Marsh secured 94% occupancy at a 100K SF, three-story climate-controlled Extra Space Storage facility at 1520 Franklin St. in Lansdale, he said overall lease-ups aren’t coming together as quickly as they were expected to.

Marsh and Schontz both attributed this in part to a slowdown in the housing market. 

People tend to rent out storage units when they move homes, and the pandemic lockdowns led to an exodus from urban areas and a red-hot housing market. 

That activity cooled down after interest rates rose. Anxiety about the job market has also led to fewer people switching positions, which is often the impetus for a move.

“Storage demand is driven by life changes,” Marsh said. “In the type of economy we have now, people are not making those kinds of life changes.”

Despite the urban exodus seen nationwide, some of Philly’s densest inner neighborhoods experienced the most housing construction in recent years.

Marsh sees a bit more promise in the city than in the suburbs. Mequity delivered a 148K SF Public Storage property at 840 Cottman Ave. in Northeast Philadelphia in December 2024. It is now 53% leased, which Marsh sees as strong progress given how large and new it is.

Schontz said he has considered buying properties in the city but decided not to after crunching the numbers and seeing worse-than-expected performances. He reviewed one where rents that had been projected at $30 per SF only made it to $18.

Investors who need to sell Philly-area self-storage properties in the short term to meet their pro formas might be lucky to break even, Schontz said.

But the greater Philly self-storage market’s sluggish performance likely won’t be detrimental for long-term investors like City Line, which can hold on to its properties until conditions improve.

Yardi Matrix Manager of Business Intelligence Doug Ressler believes that will happen in Philly.

He said the large wave of supply the region has seen in recent years is due to its exceptionally strong long-term self-storage fundamentals.

The city has 4.6 SF of rentable storage space per capita within a 3-mile radius, while the suburbs have 3.4 SF, according to data provided by Yardi Matrix. Both are well below the nationwide 7.9 SF.

“Philly has strong technical growth, it has strong academic growth, especially in the ‘burbs,” Ressler said.

He characterized the market as structurally undersupplied due to high barriers to entry in the form of extended entitlement timelines and limited land availability.

That has historically led to big bounties for investors who know how to make projects work in this challenging environment.

“It’s a hard place to develop,” Marsh said. “It’s complicated and expensive.”

But that is part of the reason it is attractive to Mequity, which is also heavily invested in New York City. He said the firm has developed skills to navigate difficult high-density markets and that Philly’s relative undersupply of self-storage space has made it an appealing place to invest. 

“On that basis alone, it kind of naturally is a good market long term,” Marsh said. 

“Because of that very reason, there has been a lot of development over the last few years, and the supply has increased a good bit. It takes some time to absorb that.”