CubeSmart, the nation’s third-largest self-storage real estate investment trust (REIT) with over 1,500 locations, has experienced notable challenges in recent years. Historically, self-storage REITs have demonstrated strong performance, yet CubeSmart has not managed to outperform the market over the past decade. Despite being one of the key players in the industry, it has lagged behind its larger competitors, the S&P 500, and other self-storage REITs during the last one-, three-, and five-year periods.
The underperformance of CubeSmart is largely attributed to the current headwinds facing the self-storage industry. Following the COVID-19 pandemic, low interest rates allowed developers to access affordable capital, leading to a surge in the construction of new self-storage properties. This influx of supply has pressured occupancy rates and rental prices as the market works to absorb the increased inventory.
However, signs of recovery in the self-storage market are beginning to emerge. In the third quarter, CubeSmart reported its first year-over-year increase in move-in rates since early 2022. Additionally, competitor Extra Space Storage reported a 3% growth in new customer acquisition in the same period, marking the first significant increase in pricing in nearly three years. Observing whether this positive trend continues is critical, as it could enable CubeSmart to enhance its market performance.
In a highly fragmented industry, CubeSmart holds just 4.9% of the U.S. self-storage market. In contrast, Extra Space Storage commands 14.4% and Public Storage 11.2%. The larger REITs have employed differentiated growth strategies that have contributed to their success. Extra Space Storage boasts an extensive third-party management platform, managing 1,811 locations compared to CubeSmart’s 814. Public Storage has excelled with its in-house development initiatives that add considerable value.
To reclaim its competitive edge, CubeSmart may need a compelling differentiator that fosters accelerated growth. Recently, it initiated a $250 million joint venture with CBRE Investment Management aimed at investing in high-growth markets. The company has also begun construction on a joint venture development property with a projected investment of $19 million. Currently, CubeSmart has $900 million tied up in various joint ventures, and leveraging this capital could allow the REIT to enhance its growth trajectory in the future.
CubeSmart’s struggles to perform relative to the S&P 500 and its larger peers have been mainly due to external pressures in the self-storage market and its lack of a distinct growth strategy. Observers are keen to see if improvements manifest in the company’s operational approach, as such changes might restore confidence in its ability to deliver market-leading returns.
