The ongoing conflict in the Middle East is increasingly shaping global economic conditions, and its ripple effects are being felt in Australia and New Zealand, particularly with rising living costs, inflation, softer housing markets, and even migration flow. As a result, the self storage sector, which we often refer to as a “defensive” asset class, is not immune. However, can we also benefit from the turmoil?

Inflation and Discretionary Spend

One of the most immediate impacts on our local economies, is the reemergence of inflation. The conflict has driven a sharp increase in global oil prices and freight costs, with some estimates showing crude oil rising significantly and pushing up transport and production costs worldwide. In Australia, inflation has climbed to around 4.6% (as at March 2026), with fuel and logistics costs a major contributor.

One of the most consequential effects of increased inflation is the rise in interest rates. This year, to date, there have been three increases in the cash rate in Australia – one in February, March, and May; from 3.60% to 4.35%, with many experts suggesting that there are more to come.

Inflation drives higher interest rates and mortgage repayments, which in turn reduces discretionary spending – one of the key drivers of self storage demand, given its typical non-essential nature. Rising living costs can make it difficult to drive self storage performance, particularly for facilities located in lower-socio markets.

Construction and Freight Costs

As the conflict continues, it is likely that the cost to construct a new self storage facility will continue to rise at higher rates than projected. Hopefully this will be temporary. Nevertheless, there is risk that the end Day 1 value of a newly constructed self storage facility will be lower than the cost to buy the land and build it at 0% occupancy, until revenue is established.

There are two positives to take from rising construction costs: 1) the new supply pipeline, which has been surging in recent years, will slow down and potentially it will reduce. This is good as it will allow additional time for storage units that are soon be added to the market to be absorbed which will protect the trading of established assets; and 2) we are likely to see investors prioritise established facilities given the reduced risk with revenue-producing assets rather than the construction risk that comes with developing new facilities. This is likely to keep self storage facility values strong, particularly modern-style facilities of scale.

The rise in freight costs is especially relevant for New Zealand. As an island nation heavily dependent on imported materials, often from far afield; New Zealand is more exposed to disruptions in global shipping routes and fuel prices. The increasingly volatile Strait of Hormuz, which is a key oil transit chokepoint, is pushing up global shipping costs. Higher freight costs increase the price of construction materials and storage-related goods. This disproportionately impacts New Zealand developers and operators.

The Housing Market

It has been published that the cost of building a detached dwelling could rise by up to 10%, as the ongoing conflict drives double digit price increases for several building materials including timber, paint and PVC piping. Following the impact of rising material (and labour) prices during the pandemic, builders are likely to price in further increase into their costs. This could result in reduced residential supply which is another fundamental demand driver for self storage – new housing.

Other trends in the housing market include reduced turnover, lower attendance at open homes (reduced demand by buyers), and a stagnant market overall with fewer bidders and longer days on the market. By in large, house prices are expected to decline this year in both Australia and New Zealand. This will undoubtedly lower transaction volumes, which could impact demand for self storage. However, on the flip side, a delayed sale or move, or households seeking rental accommodation for a period, may lean on self storage as a temporary solution. This is the golden grail in self storage demand – an easy solution to a temporary problem.

Immigration

Both Australia and New Zealand rely on strong migration inflows to support population growth which can drive self storage demand.

One of the potential benefits of conflict in regions outside of Australasia, is that migration patterns may redirect to Australia and New Zealand given the perception of safety and stability. New arrivals frequently require temporary storage during relocation, particularly in tight rental markets. This creates incremental demand for storage facilities, especially in gateway cities such as Sydney, Melbourne, and Auckland.

Temporary and student numbers into Australia have declined; however skilled migrant, working holiday, graduate, and bridging visa numbers are up. This is positive for the Australian self storage market.

The Investment Market

The self storage investment market is regularly described as counter cynical as investors flock to defensive / alternative assets when traditional assets are underperforming. We do not expect to see an impact in the self storage investment market due to the limited number of opportunities versus the increased level of demand from both local and offshore investors. Capital flow into our market continues to be strong, particularly from private equity groups.

With the rise and uncertainty in construction costs, we expect a strong swing back towards established assets rather than greenfield development which has been a strong focus over the past four years. Underperforming self storage facilities with both revenue and development upside are likely to be highly sought after by investors.

Conclusion

The outlook for the Australia / New Zealand self storage market is mixed but resilient. On the negative side, higher inflation, rising construction costs, a slowing housing market, and elevated freight expenses (particularly in New Zealand) are real challenges. On the positive side, the underlying fundamentals remain strong. Urban densification, downsizing, and immigration continue to support underlying demand. There is even potential for the ongoing conflict to result in stronger demand for storage, as we witnessed during the pandemic.

In fact, the very disruptions caused by the Middle East conflict may reinforce some of the sector’s defensive characteristics. A slower development pipeline due to cost pressures can tighten supply, while economic uncertainty often increases the need for flexible storage solutions. As a result, while revenue growth rates may moderate, the self storage sector in both Australia and New Zealand is likely to remain relatively robust compared to more traditional real estate sectors.