Reassessing Public Storage's Valuation in a Stabilizing Self-Storage Sector

The self-storage sector is entering a phase of recalibration in 2026, marked by stabilizing fundamentals, moderating supply growth, and evolving demand dynamics. For investors, the challenge lies in identifying which operators are best positioned to capitalize on this normalization. Public Storage (PSA), a dominant player in the industry, warrants renewed scrutiny as it navigates a landscape shaped by macroeconomic shifts, competitive pressures, and technological disruption.

Sector Stabilization: A New Equilibrium

After years of overbuilding and high-interest-rate headwinds, the self-storage sector is showing signs of equilibrium. Supply growth has moderated, with new construction pipelines projected to decline from 2.7% of existing stock in Q3 2025 to 2.0% by 2027. Occupancy rates for major REITs, including Public Storage, have remained resilient, averaging mid-90% levels. Meanwhile, street rates-once in a 28-month decline-stabilized in mid-2025, with a year-over-year change of 0.0%. This suggests a market nearing balance, though challenges like elevated insurance costs and property taxes persist.

Macroeconomic conditions are also shifting. Inflation has stabilized near 3%, and while economic growth remains uneven, the Federal Reserve's rate cuts in 2025 have provided clarity for financing and asset valuations. These factors, combined with a decline in new development, are creating a more favorable environment for pricing power and occupancy recovery.

Public Storage's Strategic Positioning

Public Storage's Q3 2025 results underscore its ability to adapt to these trends. The company reported a 2.6% year-over-year increase in core FFO per share and achieved a 78.5% same-store direct NOI margin during the quarter. Its aggressive acquisition strategy-spending $511.4 million on 49 facilities in Q3 alone-reflects a focus on expanding its footprint in high-barrier markets. Year-to-date, Public Storage has invested $814.6 million in acquisitions, adding 3.4 million net rentable square feet.

The company's operational scale and tax advantages further strengthen its position. In Los Angeles, Public Storage dominates with 217 facilities, benefiting from long-term property ownership and Proposition 13's favorable property tax treatment. This contrasts with CubeSmart's premium pricing strategy in urban markets like New York, where CubeSmart achieves 14.8% higher rates than Public Storage but operates fewer facilities. Public Storage's expense ratio of 14.53% in Los Angeles also outperforms CubeSmart's 25.28%, highlighting its efficiency-driven model.

Competitor Comparisons and Sector Dynamics

While Public Storage excels in scale and cost management, its peers are adopting divergent strategies. CubeSmart, for instance, has focused on expanding its third-party management platform, adding 46 stores in Q3 2025 to reach 863 total facilities. However, its same-store NOI declined 1.5% year-over-year due to a 1.0% revenue drop and rising expenses. Extra Space Storage, meanwhile, maintained 93.7% occupancy but reported a 2.5% same-store NOI decline, prompting plans to divest 24 former Life Storage assets by early 2026.

Public Storage's digital transformation also sets it apart. Enhanced customer platforms have reduced on-site labor hours by over 30%, improving efficiency while addressing competition from tech-savvy new entrants. As 31% of operators cite new entrants as their top concern, Public Storage's blend of operational excellence and digital innovation positions it to retain market share.

Valuation and Forward-Looking Fundamentals

Despite sector-wide challenges, Public Storage's valuation appears supported by its strategic initiatives. Its mid-6% stabilized acquisition yields and $649.2 million allocated for expansion projects signal confidence in future cash flows. With occupancy at 90.7% in Q3 2025 and a narrowing occupancy gap (from –80 bps to –30 bps year-to-date), the company is demonstrating resilience.

Looking ahead, analysts anticipate further stabilization in 2026 as new supply deliveries decline and demand from long-term renters-driven by urbanization and life events-remains steady. Public Storage's focus on secondary markets, where fundamentals outperform primary coastal areas, aligns with this outlook. Additionally, its ability to leverage institutional capital-poised to enter the sector as interest rates normalize-could unlock further value.

Conclusion

Public Storage's valuation in a stabilizing self-storage sector must be assessed through the lens of its operational scale, strategic acquisitions, and digital agility. While competitors like CubeSmart and Extra Space Storage face margin pressures and portfolio optimization challenges, Public Storage's combination of efficiency, tax advantages, and disciplined capital allocation positions it as a leader in the sector's next phase. For investors, the key takeaway is clear: in a market defined by geographic divergence and technological disruption, Public Storage's balanced approach to growth and cost management offers a compelling case for long-term value creation.