SSA Blog

The Federal Reserve’s Federal Open Market Committee did what had been expected and cut the benchmark interest rate by 25 basis points September 17.

The move — though slight — could provide some benefit to self storage, which is slowly crawling out of its post-pandemic come-down of sluggish leasing and soft asking rates. 

Given the storage sector’s elevated sensitivity to the housing market, any trickle-down effect to mortgage rates could help operating performance. 

“The biggest impact that will have a ripple effect on self storage is if the longer-term, 10-year Treasury stays at the 4% level or even comes down a bit,” said Neal Gussis (pictured at left), executive director of capital markets for SPMI Capital. 

While residential mortgage rates are tied more to the 10-year Treasury rate than the Federal Funds rate, the recent dip in Treasuries has caused residential mortgage rates to fall to their lowest point in 2025.

“With nearly 35% of self storage demand coming from moving activity, even a slight increase in residential moves that can be fueled by lower residential rates would cause a good ripple effect on demand," Gussis said. "That leads to revenue growth and ultimately increased valuations.” 

After holding steady on the federal funds rate since last December, the Fed’s action last week was widely anticipated, making the immediate impact more nuanced than dramatic. 

Kieran O’Shea (pictured at right), managing director of Eastdil Secured, said the move had “been priced into the debt markets for a while now, so there’s limited impact on the cost of borrowing.” 

O’Shea’s team handled StorageMart’s $3.2 billion purchase of Manhattan Mini Storage and Public Storage’s $1.8 billion purchase of ezStorage.

“I do think it helps the customer — particularly those inclined to buy new houses — which represent such a meaningful component of storage customers," O'Shea said. "So yes, good for the industry on the margins but not incredibly so.”

Downward movement is good and could restart some storage projects, Gussis said.

“Many construction starts were put on hold because of the total economics of the deal not penciling out as a combination of market pressure on rental rates, cost to build, time to build and finally interest rates,” Gussis said. “With a reduction of short-term rates and some relief on the other considerations, some construction projects may start to become more feasible.” 

Gussis said transactions for value-add deals are often funded with variable rate bridge loans, and those could pick up as bridge loan debt decreases. 

Cap rates always lag the cost of capital, so it’s too early to tell if movement will happen there.

Chris Jernigan, vice president of investments at Jernigan Capital, said short-term rate drops are unlikely to move cap rates. 

“Cap rates have remained stubbornly low for those who have been on the sidelines now for two years waiting to buy assets,” Jernigan said. “The bottom line is, I doubt cap rates will shrink to levels in the mid-to-low fours. I think the trading range will remain in the high fours to low fives.”

How many more rate cuts the Fed makes will be hugely telling for the economy. The Fed’s in a tough spot. Inflation is rising due to President Trump’s tariff war, and employment is faltering. Economists are warning of stagflation, a slowing economy marked by rising inflation and faltering employment. It’s a combination not seen in more than a generation. 

If the Fed needs to cut rates because the economy is slowing and needs to be stimulated, that’s not good for business in general or for consumer spending and behavior on storage needs.

There’s also the pending decision from the Supreme Court in November on the legality of the tariff war, which will have a big impact on markets. 

Tom Dao, a principal with Gantry, said certainty seems to be returning to the storage financing market. Tariff-driven uncertainties from earlier in the year have dissipated, he said. 

“We have already seen an increase in transactional activity as market sentiment became more confident in the relative stability of the capital markets landscape,” Dao said. “Capital sources are actively engaged, and capital is readily available.” 

That includes self storage owners looking to refinance. 

“The motivators for recapitalizing maturing debt will remain, as many loans can no longer be extended and borrowers accept that there will not be any dramatic shifts that would radically improve current conditions," Dao said. "For a time, rate uncertainty was encouraging borrowers to put off a decision to refinance or sell.”

Current moves could also help operators with not-yet-stabilized properties.

Eric Snyder of Talonvest Capital said if the Fed continues to lower short-term rates, pressure will ease on owners who have existing bridge loans and construction loans that are in lease-up. 

“As asking rates softened and lease-up momentum slowed, having lower borrowing costs — even if it’s only 25 to 50 basis points — will ease the pressure of loan covenants, giving borrowers more time to achieve stabilization, resulting in less stress for the sector,” Snyder said.