Blackstone Real Estate Income Trust's deal to sell Simply Self Storage to Public Storage for $2.2 billion signals more than the seller collecting $1 billion over what it paid less than three years ago. It also indicates optimism about long-term self-storage demand in certain parts of the country didn't ease with the pandemic.

The sale by the unit of private-equity giant Blackstone Group comes in the wake of a strong uptick in the desire for self-storage properties during COVID-19 as people moved or downsized and needed a place to store their belongings.

While that trend may have eased, the portfolio of Simply, based in Orlando, Florida, is positioned to take advantage of migration in the United States toward the Sun Belt that's been going on for some years now. It includes 127 wholly-owned properties and 9 million net rentable square feet across 18 states and in markets with population growth that has been about double the national average since 2018, Blackstone, the world’s largest commercial real estate owner, and Public Storage said Monday in a statement.

Blackstone bought Simply in December 2020 for $1.2 billion from a Brookfield Asset Management real estate fund. It had described Simply at the time as one of the top five private owners of self-storage. And some 65% of Simply’s properties are in what’s billed as “high-growth” markets in the Sun Belt. The strength of that region's population gains is reflected in the fact that nine of the 10 fastest growing counties were in Texas and Florida from 2021 to 2022, according to the U.S. Census Bureau.

In addition to leveraging those locations, under its ownership, Blackstone has “significantly increased” Simply’s net operating income by making investments that upgraded “the quality of” Simply’s portfolio and management team, according to the statement.

“Where you invest matters, and this transaction demonstrates the strong investor demand for the high-quality assets and platforms we have assembled within" Blackstone REIT, Nadeem Meghji, head of Blackstone Real Estate Americas, said in the statement.

Blackstone, founded in 1985, recently reached $1 trillion in assets under management, the first alternative asset manager in history to make that milestone even as high interest rates and an uncertain economic outlook have curtailed deal activity. The firm’s second-quarter results showed a year-over-year performance decline in its real estate segment.

Blackstone REIT also has been fielding some investor requests to withdraw their money in light of economic uncertainty even as redemption requests have slowed.

Shareholder redemption requests in June totaled $3.8 billion, 29% lower than a peak in January and the lowest month of requests this year. Still, with a cap on requests at 5% of net asset value per quarter, the REIT in June fulfilled $628 million of requests, equal to 1% of its net asset value and 17% of the shares submitted for redemption.

For Glendale, California-based Public Storage, the deal would add to its U.S. portfolio, which included interests in 2,877 self-storage facilities located in 40 states spanning about 205 million net rentable square feet as of March 31. Including the purchase of Simply and other deals under contract, Public Storage said it has expanded its portfolio since 2019 by about 55 million net rentable square feet, or 34%, through $10.6 billion of acquisitions, development and redevelopment.

Public Storage also has a 35% common equity interest in Shurgard Self Storage, which owned 266 self-storage facilities located in seven Western European nations with about 15 million net rentable square feet

The Simply acquisition is expected to close in the third quarter. Public Storage last month also bought a portfolio of eight self-storage facilities in the Carolinas for $108.7 million.

Simply’s properties complement Public Storage’s presence in Texas, where Dallas and Houston make up about 25% of its total net operating income, and Florida, where Tampa is 7.2% of Public Storage’s net operating income and Orlando is 8.3%, Steve Sakwa, Evercore ISI analyst, said Monday in a report to clients. The analyst expects Simply’s operating margin to increase under Public Storage.

Besides Texas and Florida, Simply also has self-storage properties in other states including New York, Mississippi, Illinois and California.

The deal comes after Public Storage’s failed $11 billion hostile bid earlier this year to buy Buffalo, New York-based Life Storage, which just last week completed its sale to Salt Lake City-based real estate investment trust Extra Space Storage for $12.7 billion in a deal that the combined company said has made it the largest U.S. storage operator in the United States, based on the number of locations.

The combined Extra Space Storage and Life Storage has over 3,500 locations, spanning about 270 million square feet of rentable storage space, and over 2 million customers, the companies said.

The flurry of activity is indicative of self-storage’s long-term outlook even as the sector has slowed from a pandemic-driven boost.

“Even as rent growth slows and vacancy trends toward a more familiar level, both metrics are holding well ahead of their pre-pandemic marks,” brokerage firm Marcus & Millichap said in its 2023 self-storage national investment forecast report. “The sector’s long-run outlook continues to be uplifted by growing millennial households and a downsizing retirement cohort, even as elevated inflation and a softer labor market outlook present near-term headwinds. The sector also benefits from below-peak development, with much of the activity aligning well with rapidly expanding markets.”

Even though most major U.S. metropolitan areas have reported “stagnant rents and rising vacancy as self-storage demand cooled after availability across the country hit an all-time low in 2021,” Marcus & Millichap said the sector is expected to close out this year with an average asking rent that’s 14% above and a vacancy rate that’s 1.1 percentage points below 2019 pre-pandemic levels.

“Self-storage is a resilient sector through economic cycles because of low tenant turnover, minimal maintenance costs and stable cash flows,” Frank Cohen, chairman and CEO of Blackstone REIT, said in a statement in 2020 when Blackstone agreed to buy Simply.

Eastdil Secured served as financial adviser to Public Storage, and Wachtell, Lipton, Rosen & Katz and Hogan Lovells US acted as legal advisers. Wells Fargo and Newmark served as lead financial advisers to Blackstone REIT, and BMO Capital Markets and Sumitomo Mitsui Banking Corp. served as financial advisers. Simpson Thacher & Bartlett acted as Blackstone REIT’s legal adviser.