CBRE's Spencer Levy on Why California Storage Is the Buy Right Now

THE SELF STORAGE REPORT — FULL TRANSCRIPT Guest: Spencer Levy (Global Client Strategist & Senior Economic Advisor, CBRE; Chairman of the Real Estate Roundtable Research Committee; host of CBRE's "The Weekly Take" podcast) Host: Chris Berg (Abernathey Development — "The AI Storage Guy") Topic: The change happening in self-storage and CRE — why Spencer is bullish on California and hard-to-build, high-density markets; "higher for longer" rates and what that means for cap rates; the shift from cap-rate-compression gains to operator/top-line gains; creating demand (small businesses, not just home-sellers); the "five factors of awesome"; San Francisco's AI-driven upswing; near-shoring / manufacturing's return (incl. SoCal aerospace/space). Signature frameworks: "Five factors of awesome" = capital · human capital · live-work-play · infrastructure · foreign money. · "New is the new new." · "You can't take the market — you need to make the market." · "A difficult zoning board is your best friend." Recorded: June 2026 (~1 month after Spencer's David-Bowie-themed keynote at the California SSA Napa event) Source: original recording transcript (speaker-labeled) ======================================================== Chris Berg (00:55): Today on the Self Storage Report we're talking about the "ch-ch-ch-changes" happening in self-storage — you'll get the David Bowie reference in a moment. Our special guest is live in New York City. It was almost a month ago today that he was speaking at the California SSA Napa event and did an absolutely outstanding job. We're going to dive into what's happening to self-storage and CRE across the country, maybe the globe. Spencer, we're having a little audio issue — did you hear me okay? Spencer Levy (01:17): I can hear you — you're breaking up just a touch, but I'm in New York, man. If that's my biggest problem, I've got no problems. Chris Berg (01:36): "You've got no problems" — is that a David Bowie song title? He used David Bowie references throughout his Napa presentation. If you're looking for a speaker for your organization, reach out to Spencer — he absolutely crushed it. This is the Self Storage Report; subscribe to the channel. Spencer, let me give people an idea of your titles and background, then we'll go big-picture and whittle down to California self-storage. Global Client Strategist and Senior Economic Advisor at CBRE, Chairman of the Real Estate Roundtable Research Committee — which convenes some of the brightest minds in real estate across the globe — and host of the podcast "The Weekly Take." Let's start big-picture. Spencer Levy (02:36): I just got back from Europe yesterday — London, Belfast, Dublin, on business and pleasure (I took my son to play golf). I met with dozens and dozens of investors, including our sister company CBRE Investment Management, talking about where the money's going and why. At many conferences I meet with the big occupiers too — less relevant for self-storage, but very relevant for industrial, outdoor storage, and other sectors. I'm fortunate to travel every day and meet the biggest investors, not just to understand where they put their money but to advise them on where to put it and what the trends are. To give you a direct example: Life Sciences has gotten beaten up the last few years — one of my best ideas right now is Life Sciences. And let's face it, self-storage has had a tough go too. It's a great place to put your money, because the market's going to get better as people are able to move their single-family homes — a big driver. We've also seen a big falloff in new development, so existing supply is going to tighten. And it's still largely a fragmented market, so you can aggregate the so-called mom-and-pops into institutional-grade stuff. So I'm bullish to be on a self-storage show — let's rock and roll, Chris. Chris Berg (04:01): Huge shout-out here — three years ago you spoke at the California self-storage event and said something that shut a lot of ears when they heard it. This was a month ago on your podcast with Dr. Henry Chin, talking about what you said back in Napa. Let me play it, then give you a chance to gloat a little and talk about what you're seeing from investors. Spencer Levy (04:29): California — a lot of people are negative. I'm in Manhattan right now; let's make an analogy. Some people are pretty negative on Manhattan. Not me — I'm extremely bullish, particularly in the multifamily sector. Chris Berg (05:02): You said that in Napa and you could feel the room, like "San Francisco — what are you talking about?" Talk about what you're seeing in California right now. Spencer Levy (05:26): Because there's no new supply of market-rate housing — and I'm not bullish they'll put a lot of new affordable in either. Same thing in California. Sometimes your best friend in any development business is a difficult zoning board — somebody that prevents others from building. It helps your existing supply, and if you can get through it, you can build to your advantage and have the best stuff in the market. California is a dynamic market that's had its challenges in San Francisco and Los Angeles, but I'm doing an event next week in LA on the revitalization of the defense business — putting up rockets and things related to that. California is the market of reinvention, and it's a good entry point right now, because there's negative noise about taxation and ease of doing business — and to me, those are the things that keep the others out so you can come in at a better value. Chris Berg (06:27): I was at a Stanford Professionals in Real Estate event yesterday. Everyone understands the challenges of LA, but we still have aerospace, defense tech — people are saying this could be an incredible opportunity, especially with the Long Beach port, LA port, San Pedro. Thoughts? Spencer Levy (06:35): California is bigger than 90% of the economies around the world. It's a big place — 40-plus million people, you can never count it out. But this is a self-storage show, so I'll get to that. There's no segment of commercial real estate more hyper-local than self-storage. Grocery-anchored retail might be three miles, a power center five miles — self-storage might be one mile. A prior guest on my show, Liz Raun Schlesinger, CEO of her own self-storage company Merit Hill Capital, says people like to see their units, drive by them every day — that's as local as it gets. So even if segments of the California economy are suffering — downtown LA is suffering, but Century City is doing great — and you see areas further out beginning to rebuild the manufacturing base, those are where the economic nexus of activity will require all forms of real estate, including self-storage. Chris Berg (08:00): A few questions in one. You sound bullish on California, yet you sit with global investors — and politically, that scares a lot of capital out of the state. Real estate attorneys tell me they have clients investing, but not in California. What are you hearing on investment in California? And with a new Fed chair and the ten-year wanting to pop up, where do you think that goes and what does it mean for cap rates? Spencer Levy (08:36): I'm not going to tell you the ten-year goes to five or four — I'll tell you it's going to be higher for a lot longer, and the short end of the curve is going to be higher for a lot longer too. What does that mean? Cap rates aren't coming down; they'll probably stay about where they are much longer than we think. That's actually very good news for real estate people — maybe bad news for finance people. Real estate people will be the winners in this market, because you'll have to operate better — operations is where you'll get the greatest percentage of your return. In the last cycle, with low interest rates for 20 years, 70% of your gains was cap-rate compression, maybe 30% income. Now it's exactly the reverse — the operators who know how to squeeze the last dollar out of NOI will win. And when I say squeeze — AI and other tools make it efficient, but the way you make money is growing the top line, not just saving at the bottom line. You need to create your own demand. You can't take the market; you need to make the market — make that demand for your real estate in all forms, including self-storage. Chris Berg (09:58): We had Brett Henry on a while back, and he said one thing about storage is you can't really create demand — it's needs-based: divorce, moving, etc. Speak to building demand — and when does demand come back? You had people stand up who are in 2-3% mortgages: they're not moving. Spencer Levy (10:26): That's right. Your job is tougher because your primary source is people selling single-family homes. So go find demand somewhere else — and you know where? Small businesses. Self-storage demand isn't just single-family; it's a storage area for small businesses, and a lot of those are looking at small-bay industrial. Maybe they should look at your units instead — some of your units could work better and be a better bargain than small-bay. I'm a big believer in creating demand, and creating demand means looking outside the box of where your usual-suspect tenants come from. Chris Berg (11:10): Let's talk Kevin Warsh, the new Fed chair — what are you hearing from investors globally? Are they excited? Spencer Levy (11:21): Kevin Warsh was an excellent pick — and I say this matter-of-factly: I was a big fan of Jerome Powell too. They're both steady hands at the wheel, much more similar than different. Do I want lower interest rates? You're darn tootin' — but not in this environment with inflation still there and getting a little worse. Warsh is sophisticated enough to manage that. He said he wants a new measure of inflation — like a "stripped" inflation that takes out the top and bottom of the most volatile items and looks a little better. I think he's under some political pressure to lower rates in his first go — I don't know that he will; he may not, to show independence. But he's trying to use new measures of inflation to give himself academic grounding to lower rates if he does. Chris Berg (12:24): Say I'm one of your investors, we're at the table — where are you telling me to put capital right now, and why? Spencer Levy (12:38): The first question I ask every investor isn't your cost of capital — it's your time horizon. I just left NYU (that's why I'm wearing this NYU pin) for a data center conference, and we were talking about the exit, the time horizon. If you have an infinite-life vehicle like publicly traded REITs, you have no exit — it's a perpetual-life vehicle. If we're into perpetual life, I like asset classes with long-term durable demand drivers. And you know where you have durable demand drivers? Assets around the "five factors of awesome": capital, human capital, live-work-play, infrastructure, and foreign money. If you see clusters of those five factors in a submarket, buy everything. I have investors — including self-storage investors — that don't buy self-storage; they buy a submarket, and if self-storage is in it, they'll buy it. They buy the submarket before they buy the asset type. Chris Berg (13:55): So I find a submarket and spread capital around different assets based on the five factors. Spencer Levy (14:04): Let me be specific. I was just with a friend who's CEO of a publicly traded office REIT. He walked me through his building: "Spence, what do you think about this restaurant?" I said it's really nice — how long is it open? "Till midnight every night." What about Sundays and Mondays when there aren't many people in the building? "I still keep it open." How? "I own it." This is an office guy who bought the retail in his building to create demand — because the single best amenity in office is other people, and other people isn't just the people in your office, it's outsiders too. One challenge my investors in Chicago had: they bought a beautiful building, but the retail around it suffered. I said, buy the retail and operate it, because you'll make your building worth more. In a self-storage context, I strongly believe people should be improving the area around them — that will create demand for your building. Chris Berg (15:14): One of the five factors is human capital. There was a great Wall Street Journal piece a couple weeks ago — for the first time since 1935, more people are leaving the United States. And immigration, 2020-24 you had maybe two million coming across the border; now it's near zero. What does that mean? Spencer Levy (15:43): There's a macro and a micro answer. Micro: because of the decline in immigration — a significant driver of American population — you're seeing weakness in some segments of multifamily, like B and C. That's a direct micro impact. But macro, it goes right back to my prior answer: find the submarkets where population is increasing, where wealth is increasing, where values are growing — because that's where you'll have demand for self-storage. And when there's macro weakness, my favorite type of market is one with macro weakness but micro strengths, because those have a thinner institutional buying pool but give you the best demographics around your real estate — better than you'd get in a "better" market and pay more for. So I don't worry at all about a declining population. Do I want more skilled immigration? Of course. More immigration overall? I do — it'll help drive growth, but there are political issues behind it I won't get around now. What I'll say is: don't let them distract you from what you do — buy the best self-storage where you can, and there are lots of submarkets that are growing, getting wealthier, with great interest in your product. Chris Berg (17:14): What I'm hearing is: go focus on West Palm Beach with Mr. Ross and ride his coattails. Fair? Spencer Levy (17:20): If you're going to ride somebody's coattails, that would not be a bad guy's coattails to ride. Chris Berg (17:26): You said the operator's the one who's going to win. I want your litmus test. You've got Extra Space and Public Storage doing great third-party management. Public Storage just did a JV with Welltower — very data-centric, "PS 4.0," less humans, more automation. Others say we want more bodies inside our sites because people want to touch and feel, see their spaces. From an operations standpoint, are those the guys to go with — build the sites, let them operate because they'll be best at improving NOI? Spencer Levy (18:13): The reason institutions got into self-storage in a big way about 15 years ago was because they could take an inefficiently managed mom-and-pop business and make it more efficiently managed — and AI and property-manager tools will make them more efficient still. But that's a diminishing return. This goes right back to what I said: you need to grow the top line. You cannot win just by growing the bottom line and reducing cost, because ultimately you'll be as efficient as you can get. The top line is infinite — you can grow the register to the moon — and you do that by creating and capturing a disproportionate share of demand. Chris Berg (19:14): Reverse roles. Say you're developing self-storage and you pick ten markets based on your five factors of awesome. Where are you going? Spencer Levy (19:22): If I could build in San Francisco and New York City, I'd be backing up the truck. I'd be building in the highest-density neighborhoods in Los Angeles and backing up the truck. The places where it's really, really hard to build — that's where I want to be. I want to go exactly to those places a lot of your investors are walking away from, because those places have durable demand drivers that will last. When you go into the more popular markets — the Southeast, Southwest, Texas — there's a little overbuilding in some. I want to go to places with less new supply, because — to quote myself — "new is the new new." People always want new. Put a new self-storage in one of these high-density, durable-demand-driver markets, and there'll be a path to your door. Chris Berg (20:22): Are any of your investors asking you about California? Spencer Levy (20:28): Yes, because they're looking for the best risk-adjusted return. And where do you get the best risk-adjusted return? Here comes Real Estate 101: high demand, low supply. San Francisco. Chris Berg (20:47): Thank you for taking a page out of Sam Zell's book and keeping it simple — supply and demand. Let's touch on San Francisco. Have you been lately? I hear the new mayor's doing good things, office is booming again because of AI. Your take? Spencer Levy (21:07): I go to San Francisco a lot — I'll be there in a couple of weeks; my son spent all of last summer there. I'll tell you straight up, this has nothing to do with your question: the best food in the world is in San Francisco — which goes to one of my factors, live-work-play. Unbelievable city; I love it. There have been political changes that may make it more business-friendly, which is good. But you also have the most highly educated population — 72 cents of every AI dollar goes there. San Francisco, like Austin and Boston, is always one of the three most volatile markets in the country. Guess who's on the upswing right now? San Francisco. Chris Berg (22:01): Two more questions, to respect your time. Your thesis on near-shoring — you talked about it in Napa. Spencer Levy (22:12): I'm a big believer in manufacturing — I can show you statistics on how much is coming back. I'm bullish on it in, believe it or not, Southern California. In 10 days I'm doing a gig in LA all about high-tech space manufacturing coming back to SoCal. That's an outlier — a disproportionate amount of manufacturing is coming to the Midwest; I just did a gig in South Carolina near Clemson, that whole auto-manufacturing corridor. What you need is critical mass. In San Diego there's "Blue Tech," leveraging off the Navy to create high-tech gear for naval uses. And LA — that's where Howard Hughes had the Spruce Goose; it was the hub of the aero-manufacturing business, and there are still remnants. I'm optimistic we can bring it back. I went with my wife to Santa Barbara last year for a staycation, and the earth shook — the loudest noise I ever heard — a rocket launch 30 miles up the coast. So there's real reason California can do it. Chris Berg (23:31): Great stuff. Anything else you want to add? Spencer Levy (23:36): All I'd say is this is the best time to be in real estate in my career, because it's an operator's market — and an operator will create demand by looking outside the box of the usual-suspect tenants. Grow the top line. Obviously focus on the bottom line and AI and improving expenses, but the top line is productivity, and productivity wins. Chris Berg (24:00): Fantastic. If people want to reach out to hire you to speak, how do they get hold of you? Spencer Levy (24:07): Very easy — follow me on LinkedIn and DM me, or email spencer.levy@cbre.com. The easiest way is to link in with me and DM me; I'm responsive to everybody. Chris Berg (24:22): Thank you very much — Spencer Levy does an outstanding job. Enjoy New York, my friend; hopefully I'll see you when you come back to LA in ten days. Spencer Levy (24:32): Thank you for having me. Chris Berg (24:34): This is the Self Storage Report, I'm Chris Berg with Abernathey Development. Subscribe to the show — and if you've got land in California or Arizona, let me know and I'll see if it works for some self-storage assets. Have a great day. [END OF TRANSCRIPT]