2026 Market Outlook

Join Paul Bennett as he breaks down the 2026 market outlook for self-storage and commercial real estate. In this episode, Paul shares data-driven insights into interest rates, economic trends, shifting regional demand, and why Texas continues to stand out as a growth leader. Hear a candid discussion about household formation, lifestyle changes, and investment strategy—including where smart capital is going next. If you want a grounded, expert perspective on how to navigate a turbulent market, this episode delivers actionable analysis you can trust.

Get our full 2026 Market Outlook here: https://www.aaastorageinvestments.com/info/2026-self-storage-market-outlook

Chapters
(00:01) Setting the 2026 Economic Context
(03:09) Interest Rate Trends and Impacts
(06:06) Modest Growth and Inflation Expectations
(10:15) Real Estate Market Bottoming Dynamics
(14:57) Regional Differences and Market Absorption
(17:52) Occupancy, Rates, and Cap Rate Movements
(24:14) Demographics and Lifestyle Shifts Driving Demand
(31:37) Investment Opportunities and Small Bay Industrial Outlook

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Creators and Guests

Host

Paul Bennett

Managing Director at AAA Storage

What is The AAA Storage Podcast?

Investing in self storage gives you the fundamentals and growth you need to grow your portfolio. But skip the opportunities from golf buddies and gurus—invest in a real track record. Started by John Muhich in 1993, AAA Storage has delivered 19% IRR across 90 deals, totaling $450M in exits. Listen to our expert insights on investing from the AAA Storage team. See more at aaastorageinvestments.com.

Welcome to the AAA storage podcast,
your integrated real estate and

development partner, exploring all
things, self storage investing to

bring you diversified success.

Let's dive in.

Brandon Giella: Hello and welcome back to
another episode of the AAA Storage Podcast

I have with me as always, Paul Bennett.

Paul, thank you for joining.

Today is gonna be an exciting show
because we are gonna be talking

about the 2026 market outlook.

So here are some trends, some
themes we're seeing backed by data.

We did a lot of this research in
Q3 2025, updated it very recently

here and now are looking ahead
into 2026 because we are currently.

In the first week of December, 2025.

And there are a lot of themes
and trends developing that we're

looking ahead into next year.

And so we want to catch you
guys up on that and also, uh,

demonstrate some data that we've got.

But if you want the full report,
there is a full report on the 2026

market outlook that we have on the
[e-mail]

slash insights.

So please go there, download that
report and get the latest there.

Uh, but I have my notes in front of me.

Paul, you have put together a lot of
data here, so I'm not gonna go off the

cuff and I'm just, we're just gonna
go down the line on these notes so

I don't want to get too far afield.

So, Paul, tell us a little bit about
some key themes that you're seeing

this year in 2025 and how those
are extending into next year and

how that might impact real estate.

Paul Bennett: Brandon, first of all, I
hope everybody had a good Thanksgiving.

I hope you had a good Thanksgiving.

It was nice to have a little break.

Um.

But, uh, I think we start with the,
the, the macro picture, the context that

everything sits in, which is principally
three or four major pieces of data.

There are, there's some other related
data, jobs, reports in that type of thing.

But, but essentially what we've
done as we plan for 2026 is look

at some of the smartest economists
and guys out there and try to.

Come up with a consensus opinion.

There are some pretty, not
wildly different, but there's

some pretty different opinions
about what 2026 is gonna be like.

And if you kind of throw out the
extreme on either end and, and,

and pull the data together in the
middle, you get a a picture that is

a reasonable expectation for 2026.

And one of the things that everybody
talks about is interest rates.

Brandon Giella: Mm-hmm.

Paul Bennett: And, uh, I do think, we
do think that we're gonna see probably

potentially one more rate cut this year,
and as many as three more likely two

rate cuts in the first part of next year.

Although there could be some
things that happen to cause them to

slide a little later in the year.

Um, interest rates are a key,
particularly in commercial real

estate and they affect storage.

Really not more than, but as much as
any other part of the real estate world.

And that's because when people think
about interest rates, the average

person probably thinks that interest
rate cuts mean mortgage rate cuts.

And that's not really the truth.

Um, mortgage rates are tied to the 10
year treasuries, um, there, and not

the fed funds rate, which is when the
Federal Reserve comes out and drops.

You know, rates up 25 basis points.

That's the, that's the, the
rate at which the, the Federal

Reserve loans money to banks.

It's the bank's cost of funds.

So what we pay is construction
interest, or the, the amount, you know,

the, the, the rates that we pay is
directly tied to the Fed's funds rate.

The mortgage rates are directly
tied to the 10 year treasuries,

which is a whole different animal.

So, um, we do think we're gonna see rates.

Um, at the fund, feds fed funds level,
um, decline probably as, as much

as a full point by the end of 2026.

They've come down a
full point during 2025.

Um.

Uh, but, but probably, uh, uh, another
three quarters of a point to a point

decline in, in our borrowing cost,
uh, by the end of 2026, which means

for us, variable rates make a lot of
sense, um, because we can ride the

rate curve down, uh, if we, if we
get those, um, if we get those drops.

However, on the mortgage side.

I think rates are gonna stay basically
in the area they're in right now.

Mortgage rates are in the 6.4,

6.3%

range.

I think rates by mid
2026 will be in the 5.8

to 6.2%

range, and that's based on
reading what the economists at

Chase have to say at Wells Fargo.

Had to say a number of different
people, and it's really because.

2026 is gonna be a year of tug of
war In the economy, there's gonna

be constant questions, whether we're
gonna be facing inflation or recession.

Brandon Giella: Yeah.

Paul Bennett: And that's gonna keep
the 10 year treasury about where it is.

And that's what mortgage
rates are tied to.

So I think you're gonna see a drop in
general interest rates commercially

and, and mortgage rates decline
slightly, but basically stay, uh,

in the range that, that they are.

Um, and the reason mortgage rates
impact self storage in particular

is because moving is about 25% of
the demand in the self storage mark.

And we've seen a lot of that demand
go away or be delayed in the last

couple years when rates have been
higher and people, you know, houses

aren't as affordable as they once were,

Brandon Giella: Yeah.

Yeah,

Paul Bennett: um, because
of interest rates.

And so, um, it's going to have, although
our borrowing costs will, will come

down, I would love to see mortgage
rates come down because that will spur

some demand on the self storage side.

But I don't think we're
gonna see that dynamic.

Um, happened in 2026, uh,
uh, maybe late in the year.

But anyway, so that's the, the, the rates
impact both on borrowing cost and on

on new home sales is probably the thing
that we watch as much as anybody else.

The other things that we look at are
the GDP forecast, um, which looks like.

The growth, uh, in the economy for
2026 will be somewhere in the 1.8

to two, 2.4%

range.

Um, so middle of that range is
about 2%, which is a solid growth.

Not, not, you know,
expansive, but, but solid.

And a lot of what I'm
reading is saying that.

There are some expectations that
inflation will tick up in the first half

of the year, and then really calm down
as we go into the back half of 2026.

And, um, you know, all those things
directly or indirectly affect

businesses in our small bay, um,
you know, in our small bay product.

Uh, and they directly or
indirectly affect interest rates,

which then affects everything.

So those are the things that we
really look at and we're, we're

looking at relatively modest growth.

Um.

Controlled inflation, maybe above the
Fed target at 2% in the first half of the

year, and at, uh, that target or slightly
below in the second half of the year.

And then rates, again, as I've already
said, we think the Fed funds rate's gonna

come down 50 to a hundred basis points.

I think mortgage rates are gonna
stay fairly close to where they are.

They, they may see sub six.

But it'll be the high
fives, you know, 5.8,

5.9%,

not, you know, not under,
not significantly, under 6%.

So that, that's sort of the economic
context that, that sort of, that sort

of, but that drives our expectations
along with an understanding of

where the market is and what's
happening in the market, which we're

gonna talk about in a few minutes.

Brandon Giella: Yeah.

Yeah.

No, that's helpful.

There's a lot of, uh, you
know, if anybody's following

the, the financial news.

Financial press, there's always,
uh, confusing information,

conflicting information.

And so you distilling it down to
these key points is really helpful.

I'm curious if you think, uh, how maybe
the employment situation, labor force or

the, um, like consumer confidence levels,
do you look at that or think about that?

Like if you're reading the Wall
Street Journal in the morning and

you know, people talk about that
'cause that is a, you know, the dual

mandate of the Fed is thinking about.

Uh, stable prices in full employment.

And thinking about that employment
picture, like how does that

factor into your thinking?

Paul Bennett: Uh, there's a wild
card that everybody's talking about.

I don't know that it's a 2026 issue,
but it ultimately will be an issue,

and that's the impact of AI on

Brandon Giella: You think so?

Paul Bennett: Um, yeah,
I mean, I've read a lot

Brandon Giella: Yeah, yeah.

Yeah.

Paul Bennett: of the questions
and there's no definitive opinion,

but it's gotta have an impact.

Um, it, it, it already
has somewhat of an impact.

I, I think the economy, uh, uh, markets
making record highs as we speak.

Or it did yesterday.

I think, um, almost everything I
read really expects the market.

In fact, several of the economists who
I read their outlooks for 2026 thinks

the s and p will set new records.

It's between 70 508,000.

Brandon Giella: Interesting.

Paul Bennett: so I, I think
business will be fine.

Um, I, I think it's a really strange year.

I think it's a, it's a shifting
turbulent year where it's really hard

to, to see clearly, you know, where
it's gonna go, and I think the result

is, it kind of gets stuck where it
is, which is not a horrible place.

Right.

It's,

I mean.

Things could be better,
things could be a lot worse.

Um, the economy, you know, the market's
doing fairly well, the economy's

chugging along and pretty resilient.

Uh, I think that'll be the case in 2026.

I don't think there'll be wild swings
up or down, but there's this tension

that's kinda holding things in the same
place, if that makes any sense at all.

Brandon Giella: yeah.

No, that's helpful.

I like, I like your, your
realistic, but kind of a hopeful,

optimistic out outlook on that.

That's helpful.

'cause yeah, again, it's, it's
very confusing and, and it's,

it's hard to predict, but, uh, but
summarizing it that way is useful.

So how do, okay, so how do
you look at the current.

Market when or the, uh, you know,
thinking about like supply side,

demand side, thinking about the actual
real estate market heading into 2026,

what does that look like for you?

Paul Bennett: Um,

it's, it's, it looks a
lot like the economy.

We, we, I mean it really does.

And, and it's, it's, I'm not trying to
be funny, but it, it, it is very similar,

Brandon, in that there are different
forces pulling in different directions.

Um, we've talked about the
bottoming process and, and we are

in a bottoming process and I think
there are lots of points of, of

confirmation of that at the same time.

I would tell you that the, the bottoming
process feels right now like it's

choppier than it was and may extend
a little longer before we see sort of

a prolonged lift, uh, in the market.

And I think it's tied to some of
the uncertainty in the economy.

Brandon Giella: Yeah.

Paul Bennett: Um, and, and it,
it, it is very market driven.

Specific market driven.

We we're coming out of absorbing
the oversupply that was built,

you know, coming outta COVID.

Um, that oversupply is being absorbed.

Some markets are further along
in that process than others.

Um, but o overall, I think it's going to
be a, uh, uh, I think it's a solid year.

Uh, I, I, I remind people all the time
we're developing the projects that

we're working on now, don't have to
reach their optimal value tomorrow.

Um, we've got time and, and I think,
we'll, you know, we'll be well through the

bottoming process and coming up the other
side before we're ready to sell assets.

Uh, so it doesn't concern me.

I just think the market's a little
bit choppier at the same time.

The capital has come off the sidelines.

Um, we have not sold a property since
2022, which is kind of when the market got

overbuilt and things got softer and rates
got softer, and, um, not sold a single

property in our portfolio since 2022.

I've had four closings, um, between the,
from the middle of November till to today.

Um, deals that we started negotiating
in late September, October, and

they actually closed on the sale
of four different properties.

Um, in the last, and we've got
other conversations going on.

Um, and so what's happening is that
the institutional sophisticated buyers

see the bottom and know this is a
time to start deploying capital again.

They've had their hands in their
pockets for three years, um, and, uh,

not, not totally, but at some level.

Um, and, and they're, they're
getting very active again, which I

think is confirmation that we are.

You know, in that bottoming process,
I just think it may look like a, a,

a, a square, a bucket and not a v.

You know, it's not like touch
the bottom and go straight up.

I think it kind of travels along,
um, you know, uh, on a horizontal

axis for a little while, while the
market sorts out a few more things.

But overall from a development
standpoint, um, new development, uh, as a

percentage of current inventory is down.

Under 2.7%

on a nationwide average.

Now it, it's peaked.

It peaked at close to 4% of
current inventory in 2223.

Um, and everything I'm reading tells
me that it will continue to decline.

And ultimately reach about 1.5%

of current inventory by 2 20 28, 20 29.

And there are two reasons for that.

Number one, there are a lot of
headwinds for development today.

Um, fortunately, we're
strong enough financially.

They, they don't keep
us from moving forward.

We think that's the smart thing to do is
the premise behind both our funds, which

is, you know, development is shrinking.

The amount of development that
creates an opportunity in 20 27,

28, 29, when there's not as much new
supply and demand continues to grow.

It'll, it'll increase the
value of our properties,

Brandon Giella: Hmm.

Paul Bennett: but, but there are
headwinds and that has slowed development.

The other thing is the storage
industry's maturing and, um.

I don't think you'll see the wild swings
in the development and the overdevelopment

that you've seen historically.

I, I think as a mature industry, one and
a half percent of current inventory is

about where it should be, and I think
if developers are prudent, they'll,

they'll look at the individual market,
they'll look at the overall picture.

And when we start to creep, once we
get there, once we start to creep.

Above that number, they'll
be more hesitant to develop.

So I think we'll see it continue down
and stabilize in 28, 29 at about 1.5%

of KE inventory, which is good news.

It, it's, it creates opportunity for us.

Um, the, the, the regionals
markets are very uneven.

The, as I said a minute ago,
the recovery is very uneven.

You've got areas that are,
were so grossly oversupplied.

Uh, that they really haven't completely
absorbed what happened, and in some

cases, people have continued to
build, which has only made it worse.

Um, the, the one of the reasons we've been
Texas centric for so long is that these

swings in the supply side of the equation
don't have as much impact in markets

that are growing at dramatic rates.

And nobody in the country over the last
20 years has grown faster than Texas.

Then the Austin Metro, then the
San Antonio Metro, the Houston

Metro, the Dallas-Fort Worth metro.

Um, nobody can touch their growth numbers.

So even though you see oversupply, it
gets absorbed faster because of the

inward migration into those markets.

And so the,

Brandon Giella: I will say as a
resident of Fort Worth, Texas, that

it is growing very, very quickly.

Yeah.

Very, very quickly.

Paul Bennett: uh, I mean,
Austin got overbuilt.

Um, San Antonio got overbuilt.

We've got projects and, and
I've, I don't think I've been.

Um, secretive about this.

We felt the impact of that with
projects that we developed and, and

put on the ground in 2022 that have
been slower to lease up than normal.

Um, but we are seeing that turn
and, and we think those markets

continue to be really good places.

The, the worst oversupplied markets
are, the major coastal metropolitan

area is Phoenix and Denver.

Um, the Texas, the TE Texas Metros.

Um, Charlotte, Nashville, uh, Charleston,
South Carolina, um, are all markets

that, that where the growth is so
significant that yes, it gets oversupplied

in moments, but that really, it, it
really absorbs fairly quickly, um,

the secondary and tertiary markets.

Um, you have to be careful
because you don't have growth.

The same kind of growth in those
markets, um, uh, but are still

solid plays, and it's really
where our strategy hits because.

We build in secondary markets,
not tertiary, but secondary

markets that are directly tied to
fast growing metros like Austin.

When, when I say we develop in
Austin, we're not, we're not in

the city limits of Austin, or
very rarely we're in Georgetown,

Texas, dripping Springs, hu Texas.

We're in all the small communities
that surround Austin, uh, that,

that are supported by Austin.

So they're benefiting from
the growth in the market.

But you don't have the complication of
the jurisdictions to deal with like you do

in the major metros, that kind of thing.

Anyway.

Um,

Brandon Giella: Yep.

Paul Bennett: and, and so we're looking
for markets that have population growth

that exceeds two point a half, 3% a year.

Um, and with that kind of growth, you can
generally, you can weather the storms.

Occupancy across the industry
has remained pretty stable.

We did see it tick down, uh,
in Q3, about 40 basis points.

O on average.

A lot of that is seasonal.

People may not realize it, but the
storage business is somewhat seasonal.

Um, we see, you know, a lot of lease
up activity in the march through, um,

you know, August, September timeframe.

The, the fourth quarters generally slower.

And, uh, and the first quarter of
the year is dramatically slower.

January, February, March.

Um.

And so particularly January, February,
so I, I think some of the, the

drop, but occupancy's still above
90% on average across the country.

Um, the, you know, and, and, uh, and so I.

And the rate pressure has begun to abate,
those two are tied to each other, right?

What the REITs did when, when
everything got overbuilt, is they drove

prices down to maintain occupancy.

Um, and so they were successful.

They, they kept occupancy well above
90%, but they drove street rate down

street rates down for 28 months in a row.

Brandon Giella: Hmm.

Paul Bennett: about at net
neutral in terms of rate growth.

Some markets are showing positive
rent growth, um, month over month.

Others are still slightly
negative or at zero.

And on the whole, we're sort of,
we've, we've achieved equilibrium, if

you will, between supply and demand.

Where, where rates are stable,
they're not increasing dramatically.

Uh, but, but they're
not declining further.

And I think that's one of the things
that ties back to my comment about

what kind of year 2026 will be.

If you'd asked me six months
ago, it felt like we'd see

pretty strong rip growth in 2026.

I, I don't think that's gonna be the case.

I think we'll see rent growth, but I
think it'll be, you know, that, that.

One, two, 3% range.

Not something more dramatic than that.

And I think that's where the recovery
kind of gets extended out a little bit.

Brandon Giella: Okay.

Okay.

Paul Bennett: Um, cap rates in
the market, um, have ticked down.

We're seeing deals go off at a five
and a half to five and three quarter

cap rates, which is a tick down
from where we were at, around six,

maybe slightly above or below six.

Um.

And, and I think there will be
continued slight compression

in cap rates for self storage.

Um, because the fed fund rates are
gonna come down, and that means overall

investment returns and expectations
will come down and people will be

willing to accept slightly lower yields.

Um, and I also think you're gonna
see a bit of a feeding frenzy here.

With the institutional guys
trying to find, you know,

good properties to acquire.

We we're already, like, I've already
told you we're, we're seeing that today.

So, um, so I, I, those are the sort of
the major components of the market today.

Um, and all in all, it's, it's,
it's, it's a positive picture.

Uh, it just has a lot of noise in it
in terms of a direction from here.

And, and I wanna remind everybody,
'cause we talk about this a lot, it's

why we believe development is such a
critical play to have in your portfolio.

Um, because we're, we're more
insulated, yes, we can be impacted.

Yes.

The lease up of a facility could
be slower than we projected.

Um, we're not seeing significant
changes in construction costs.

Um, so really the risk
is the lease up risk.

Um.

That's never a good thing if you, if
you're a little slower leasing up.

But because of the built in value,
the difference between what it costs

us to build a facility and what the
cash flow stream is worth, once we

establish it, we've got more room to
absorb a body, blow a market that's

a little slower than we thought.

Um, than acquiring existing properties.

And, and that's why we've stuck
to our strategy, um, to, you

know, to, to continue to develop
and, um, fund one doing great.

Our lease up and the fund one
properties is doing really well

and, um, and we're super excited.

In fact, Brandon, we just took
down the first piece of land and

fund two today, and we'll start
construction on a site in Houston.

Um, I don't think because of the
holidays, we could get started

before Christmas, but I think we're
probably gonna push it to January

1st just because of the holidays and

Brandon Giella: Yeah.

Yeah.

Congrats.

That's exciting.

That's an exciting milestone
for growth fund two.

Paul Bennett: yeah.

For fun too.

Yeah.

Um, and, uh, continuing to raise
capital there, obviously, but it

has broken escrow and so it can now
start making investments and, and the

Huffmeister project in Houston's one
we're, we're really excited about.

So

Brandon Giella: Very cool.

Very cool.

Okay, well I wanna, I wanna
recap that was a lot of, a lot

of information all at once.

So, um, to recap current market
conditions, uh, overall hopeful.

You're seeing this bottoming process,
but you can see we're kind of on our

way, maybe through that and out of that.

And you're seeing that in, in the
construction pipeline, uh, and

how that's, IM impacting your,
your kind of forecasting there.

You've got, um, uneven recovery
based on different regions.

So, uh, you're seeing a balanced
market in some of the Texas metros.

There's oversupplied markets
in major coastal metro areas.

Possibly undersupplied
markets in secondary cities.

You're looking at occupancy
trends that is around 92%.

Um, and then you're seeing, um, a, a
slight growth in the rental rate for 2026.

Is that a fair, fair summary for all

Paul Bennett: a fair

Brandon Giella: little points?

Okay, great.

So if we wanted to carry this forward.

We could go into talking more about,
, market fundamentals, or we could talk

about some of the investment opportunities
that you guys are seeing in 2026.

Paul Bennett: the fundamentals
is an, an easy one.

I think there's some
interesting things happening.

In the fundamentals, the, the
underlying fundamental that we talk

about a lot is household formation
and continue to run between 1.3

and 1.5

million households that are
formed on an annual basis.

Um, we are seeing the millennials and
the older Gen X, not the, the, the

younger end of the Gen X generation,
but the older Gen Xers are now in their

mid twenties, 25 to 28, and they're
entering the peak household formation age.

At the same time, the boomer
generation is going the other way.

And the combination, you know, household
formation, starting a family creates all

the life events that require storage and,
and so on the other end, you've got the

boomer generation like me, kids are gone.

We're downsizing, we're keeping
all this stuff that we think the

kids want one day, but they really
want, but we're, we we're rent

Brandon Giella: fall.

They don't get rid of it.

Paul Bennett: Um, so those
trends are intact and solid.

And if you look at the demographic
breakout across the, the, the country,

uh, the millennials and the Gen
Xers are the two largest generations

in that sociodemographic mix.

So, um, you, you, you've also got, um,
you know, the a a a population that

remains fairly mobile, which is another
key driver for, for self storage.

But there are a couple
things that are that.

I think I mentioned on an episode, gosh,
weeks or months ago, but we're starting

to see more and more of everybody's
talking today about affordability.

Uh, the p politicians are all
talking about affordability.

One of the things that's happened
in the new home market is that in

order to make homes more affordable,
that are building smaller homes

Brandon Giella: Mm-hmm.

Paul Bennett: now, not everywhere,
obviously, they're still building.

You know, large haul, but on average
what you're losing is storage space rooms

are getting smaller, you're getting less
storage space, and then you've got a

whole generation, generation and a half
that, that either haven't been able to

afford a home or they're lifestyle is
so mobile, they don't wanna own a home.

Um, and those, those millennials
and Gen Xs are using self

storage like their garage.

It is where they put all their toys,
their bikes, their motorcycle, their

four wheeler, their skis, their, the
stuff they don't have room for in

the apartment, or they bought a house
that D doesn't have room for it.

Um, and so we're seeing a whole
new, not new, maybe a little bit

dramatic, but a whole, it is not brand.

It's not like it never happened before,
but it's a growing trend and these

people are a little bit heavier users.

They're in and out of
the storage facility.

More frequently than, you know, the guy
that's having his kitchen remodeled.

And so he put all his kitchen furniture in
storage and it stays there for six months.

He comes back six months
later and gets it.

Um, but there is a, there is a, a,
a lifestyle trend, um, that really

between the smaller living spaces and,
and the younger generations that are,

that are more apartment oriented and,
and don't have storage space storing,

you know, they're, they're, they're.

Their toys.

Um, and uh, and that that combined
with the, the aging process for

that generation household formation
and the boomers going the other way

keeps demand at very stable levels.

I mean, I, I think demand is, uh, will
continue to grow and I don't think

there's anybody, um, in or outside the
industry that thinks it it otherwise.

So we, we feel pretty good about that.

Um, you know, in the last.

Four years, the, the market's
demonstrated, the resilience

that we talk about all the time.

It hasn't been a great market
since, since we came outta

COVID, got overbuilt, raced down.

You know, we've talked about all that.

But the reality is, um, we,
we've seen deals hold up.

The default rate in self storage
is still the lowest of any sector

in the real estate industry.

Um, and, and assets continue to
perform, maybe not at the level they

did in a different cycle, but they
still are providing positive returns.

Brandon Giella: Hmm.

Paul Bennett: And, and here's
the, here's the equation.

Economic slowdown equals lower mortgage
rates, equals increased home sales,

and therefore increased storage demand.

Um, it's a little bit oversimplified,
but, but that's one of the reasons

that it's countercyclical, that, that
self storage tends to outperform other

types of real estate in, in a down
economy because rates come down, houses

become more affordable, people move
more and people become more mobile.

'cause if they lost their job in New York,

Brandon Giella: Yep,

Paul Bennett: they've always
wanted to live in Florida.

It's a great time to sell your
house and move to Florida, right.

Um, and get another job, but get
one down there so people would

come a little bit more mobile.

Uh, and, and that drives the usage
of storage in down economies.

A lot of what's happened in storage
in the last four years has been

self-inflicted, um, just overbuilding,
people being a little bit reckless.

And, um, but it's, as a, we've said,
it's, it's really, um, correcting itself.

Um,

Brandon Giella: I like what, I
like how you mentioned that, that

lifestyle, uh, narrative because
I, I think it's, it's maybe hard

to, it's um, it's very conceptual.

Might be abstract right
now, but I'm curious how.

My generation, so I'm 35.

I have little kids forming
households, buying all the things.

I have too many toys, I
gotta shove 'em somewhere.

Uh, but then also the, the boomer,
you know, parents are passing down

their stuff like, like you're saying.

So what do we do with all this stuff?

And because of COVID, because of our
generation, my generation of millennial.

We're having this interesting conversation
about what is my relationship to stuff?

What do I want to buy?

What makes me happy?

What is my value?

Uh, or what, what do I
seek value in other things?

Do I wanna move out to a smaller
city that's a little quieter, more

peaceful, less things, smaller house?

Like, how, how does all that?

I don't know.

I, I don't know where to go
with that, but I am seeing,

um, friends talking about that.

We are talking about that as a couple,
and I'm reading a bunch of articles

that I've seen just in the past couple
of weeks from the Wall Street Journal,

the New Yorker, talking about the.

The passing down of stuff from generation
to now, the millennials and just all

the complications that come with that.

So anyway, it's, it's kind of an
interesting point to think about with,

with the, the hard economic data as well.

Paul Bennett: Yeah, it's, it is the
underlying, fundamental thing that drives

demand in the market is, um, is stuff.

And I don't see Americans, um, falling
out of love with stuff anytime soon.

So,

Brandon Giella: Okay.

Okay.

All right.

Okay.

Paul Bennett: your generation
is all about the toys.

Brandon Giella: Yeah.

I

Paul Bennett: you'll, you'll, you'll buy
cheap furniture to Ikea so you can buy

a motorcycle to ride on the weekends.

Brandon Giella: Yes, yes, yes.

Or in my case, like an iPad or something,
you know, but yeah, no, totally.

Yeah, no, it's true.

But it's, it's, yeah, it's definitely
something to think about for sure.

I know my, my generation's
thinking a lot about it.

Paul Bennett: I.

Brandon Giella: Okay, so, uh,
as we wrap here, any closing

thoughts, final thoughts?

Paul Bennett: Yeah.

Two, two or three quick things, um,
because we are running long on time,

and I know we probably need to wrap
it up, but we were gonna talk a little

bit about, um, you know, opportunities.

We've already touched on this, but I
would just highlight that we believe

the, the, the best opportunities
in the market today are unders

supplied or stabilizing secondary.

And tertiary markets, including
the city skirt markets.

In fact, I would put
them first on that list.

The city skirt markets that are
supported by growing vibrant,

major metropolitan areas.

Um, and that is our strategy.

We, we build in the city skirt markets
that are connected to, we're building

in fund two as a project in Gastonia,
North Carolina, which is 16 miles

west of the center downtown Charlotte.

Um, all the things we're doing
in Austin and San Antonio and

Houston are in communities that,
you know, are bedroom communities

to those major metropolitan areas.

Um, I, I, so I, I thought about
this in preparation for today.

I'm just gonna give you
my opinion right now.

If I were had the choice to invest
in existing properties or develop,

I would, I would be a little more
cautious on the existing side than

I would be on the development side

Brandon Giella: Okay.

Paul Bennett: because of the uncertainty
of where we are in the bottoming process.

Brandon Giella: Hmm.

Paul Bennett: Um, I think from
a development standpoint, when

you've got a deal that's not
gonna deliver to the market.

For six months to a year, uh, and
you're gonna build it in phases.

Um, you know, a project, the
Huffmeister project for Growth fund

2 we'll complete by mid-year 2026,
and it will be in lease up of phase

one till at least mid-year of 2027.

12 months is what we,
what we shoot for 18.

We, we give it 18 in our projections,
but we try to get it done in 12

and then we'll build phase two
and lease the whole project up.

But you're talking about a project
where the market dynamics are really

gonna matter in 27 and 28, not 26.

And I think we're well out
of the bottoming process

by the time we get there.

Brandon Giella: Hmm.

Paul Bennett: just a, a
little thought for people.

And, um, the other thing I thought it
would be fun, I tried to come up with a

headline and, and by the way, we haven't
talked about Small Bay Industrial at

all, which is the other product we

build

Brandon Giella: yeah, yeah.

Go for it.

We got

Paul Bennett: and I can
do that in three phrases.

Tight supply, durable demand,
constrained development.

Um, it continues to be one of the, if not
the hottest sector in all of real estate.

Brandon Giella: Mm.

Paul Bennett: Um, and, uh,
occupancy nationwide's over

90, well, not over, but 97%.

Brandon Giella: Hmm.

Paul Bennett: and we are seeing our
projects pre-lease to 60 and 70%

occupancy before we even get a co.

Um, which in that type of real estate
isn't, hasn't been the norm in the past.

It's really the norm in retail and
office where you can't even build

a project till you have it 50%
leased But we more often than not.

Build the buildings and then
start the leasing process.

But the market's been so hot, we've
been able to lease them, pre-lease

'em, but for, for self storage, I
would say the 2026 headline is Rising

Demand, strategic Growth, and Investor
Opportunities in a Shifting Market.

Brandon Giella: Hmm.

Paul Bennett: Because I still think the
market feels like it's moving around

a little bit and hasn't totally found,
um, its legs in the small bay market.

Again, high demand, tight supply
and strong investor returns

would be the headline for
2026 for Small Bay Industrial.

So.

Brandon Giella: Hmm.

I love it.

I love it.

You've, you've talked a little
bit about the small Bay industrial

and, and the reason it's so hot
and a couple of other episodes.

Um, and so it's, it's encouraging to
hear that that trend is continuing.

The next year, and I know it's
part of your thesis, that's why you

guys are so passionate about what
you're doing, but it sounds really

positive in a lot of different ways.

Uh, uncertain, you know, but,
but generally in the right

direction, which is exciting.

Paul Bennett: It is not
uncertain in a negative way.

Like, oh, we have no idea
where this market's going.

And there's lots of risk.

It really is.

It just doesn't feel the
ground's still a little squishy.

You know, we were sinking up
to our knees 24 months ago.

Um, that's no longer happening.

Uh, but the ground still doesn't feel
totally firm in terms of the direction.

More the speed than the direction.

The direction is determined.

It's really the speed at which it
moves in that more positive direction

as it comes out of the cycle.

That is a little bit harder to predict.

Maybe that's a better way to
say it than I've said it in

the 30 minutes we spent talking

Brandon Giella: No, I like that.

Yeah, I like that.

Awesome.

Okay.

Okay.

Uh, well this is great.

Thank you.

Um, any, any final thoughts or anything
you wanna leave listeners with,

Paul Bennett: been fun as always.

Brandon Giella: Awesome.

Paul, thank you so much for your insight.

I know you put a lot of research into
this and, and thinking through this.

And again, we have a, a, a
research report on our website, aaa

storage investments.com/insights.

You'll see it there in
the middle of the page.

Um, but this is really, really helpful
and I hope it serves investors well.

The, the way that you guys are thinking
about it, because your investment

decisions, your development decisions,
these are all predicated on this data and

on on this research, and it's stuff that.

Ask the team, ask Paul, ask Andrew, ask
the team about where they're getting this,

these numbers, and, and, and back that up.

And so I know that you guys do that really
well, and I'm very grateful that you

do that because it serves us very well.

Paul Bennett: Well, we, we, uh, we
love what we do and we love providing

great returns to our investors.

But, and, and I, and.

Generally it's, it's what drives us.

At the same time, I don't think you
can ever forget that we're the largest

investor in fund one and fund two.

Um, and so we're doing for our partners
what we would do for ourselves in terms of

trying to get the best feel for the market
and make the best decisions that we can.

So,

Brandon Giella: that's right.

That's right.

Having that skin in the game makes
your due diligence all that sharper.

I,

Paul Bennett: yeah, I,

I would hope we do it the same way
if we didn't, but, um, but you know.

Brandon Giella: We're

Paul Bennett: Human
nature is human nature.

So who knows what the answer
to that question is, but,

Brandon Giella: that's

Paul Bennett: but we try, you know,
nobody can predict it perfectly.

I'm not here to give, you know,
you know, investment advice or

I don't have a crystal ball.

Um, but we feel good
about where the market is.

I, I will look forward to the, the.

The next part of this cycle speeding
up as we go deeper into 2026.

I think 2027 and 2028 are gonna be super
interesting years in a positive way.

Um, and uh, we just gotta just keep going.

Brandon Giella: I like that.

I like that.

Well, Paul, thank you as always.

It's good to see you after a nice
Thanksgiving, and we'll see you very soon.