Large Self-Storage Developers Are Buying Portfolios Instead of Building New

For most of the past decade, the largest self-storage developers deployed capital by building new facilities. Today, that calculation has evolved into an attractive new opportunity. According to Tom de Jong, Executive Vice President at Colliers, many of the industry’s biggest players are increasingly acquiring existing portfolios, because buying now offers compelling value relative to construction.

The Build vs. Buy Calculation Has Shifted

Existing self-storage facilities, particularly in markets with abundant new supply, are trading at valuations that create appealing entry points for well-capitalized buyers. For large developers who know their own construction costs precisely, those prices represent returns that ground-up development can find hard to match.

“A lot of the big developers that had big capital commitments have pivoted from building to buying because they feel like they can buy portfolios for close to replacement costs – in some cases, less,” de Jong says. “So it’s cheaper for them to buy right now than it is to build.”

When a developer can acquire an operating facility at or below what it would cost to entitle, construct, and lease a comparable new property, acquisitions become a clear path to value. De Jong describes the shift as a smart response to current market pricing, construction costs combined with abundant new supply in fast-growing metros have made acquisitions an especially strong source of risk-adjusted returns.

What Slower Construction Means for Well-Supplied Markets

When large, well-capitalized developers redirect capital toward acquisitions, the pace of new deliveries naturally moderates. This is especially relevant in metros like Phoenix, Austin, and North Las Vegas, the same markets where these developers led an active construction cycle and added significant new supply.

De Jong points to the supply pipeline as the primary leading indicator for recovery in well-supplied submarkets. “The sub-markets where construction slows down, or new supply stops being delivered, those sub-markets will recover first,” he says. As the developers with the largest capital commitments increasingly buy rather than build, existing operators in those markets can look forward to healthier rents and occupancy as the market absorbs recent supply.

De Jong encourages a precise, submarket-level view of every metro. Recovery will happen submarket by submarket rather than city by city. “I don’t think you can say globally it’s like Miami or Vegas,” he says. “It’s the specific pockets within those areas where the supply stops or slows down considerably.”

Smaller Buyers Are Finding Opportunity Down-Market

The portfolio acquisition wave is also opening opportunities for different tiers of capital. As the largest developers concentrate on acquisitions in primary markets, smaller institutional buyers and private investors are finding fresh openings in secondary and tertiary markets.

“What’s happened with so much institutional money coming into the bigger markets is that a lot of the second-tier money has gone into the secondary and tertiary markets, and the mom-and-pop investors have had to go into the Cheyenne and other much smaller markets where there’s not a REIT presence,” de Jong says.

De Jong’s team is currently working on deals in Cheyenne, Wyoming, and he sees the same opportunity in smaller markets such as Des Moines, Iowa; Boulder, Colorado; Santa Fe, New Mexico; and Tucson, Arizona, as well as markets with similar demographic profiles. In these places, smaller buyers can still find returns unavailable in Los Angeles or San Francisco. These markets also reward careful underwriting. De Jong notes that the smaller the market, the more any single new facility influences rents and occupancy. Buyers underwriting secondary markets can prudently hold rents flat in their projections for at least the first three years when new supply is entering the area, he says.

Third-Party Management Shapes Where Capital Goes

One factor shaping where institutional buyers deploy capital has little to do with supply or demand. According to de Jong, most institutional buyers rely on one or two preferred third-party management companies to operate their acquisitions. If a preferred manager does not yet operate in a given market, the buyer often focuses elsewhere.

“If their preferred third-party manager isn’t in a market currently, or they won’t manage a property in that market, then they would shy away from that particular market,” de Jong says. This means institutional entry into smaller markets often tracks the operational reach of management firms as much as investment fundamentals, and it helps explain why certain promising secondary markets remain open opportunities for well-positioned buyers.

High-Barrier Markets Are Performing Strongly

High-barrier-to-entry markets, where new construction is difficult to permit, are performing well. De Jong points to San Francisco, which he says is doing “extremely well,” along with Seattle and Boston. Even Chicago has pleasantly surprised him with strong recent rent performance.

Los Angeles stands as its own distinct case among high-barrier markets, where recent new supply and shifting population dynamics call for careful underwriting even in a market that is structurally difficult to build in.

Where the Trend Leads

De Jong sees the portfolio acquisition trend as one of the most significant developments in the self-storage transaction market right now. The convergence of below-replacement-cost pricing, a moderating construction pipeline, and large developers redirecting capital toward acquisitions creates conditions that reward buyers who can move on portfolio opportunities quickly. For now, de Jong says, the math favors buying over building in a way that has not been true for most of the past decade.

About Tom de Jong: Tom de Jong is Executive Vice President at Colliers and Founding Principal of the De Jong Self Storage Team. With 19 years at Colliers, a $2B+ transaction record across 32 states, and an SIOR designation, he is one of the most recognized specialists in self-storage brokerage and investment advisory in the United States.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.