The storage industry’s major publicly traded companies face a market dilemma when some of them start releasing earnings – and forward-looking performance guidance – later this week.

The Big Four could express over-optimism moving forward, even though most industry numbers point to a decelerating market for the storage business across much of the nation. Or they could simply call it like it is, dampening expectations amid a decelerating market for the storage business. Maybe a little bit of both.

No matter which way they go, say industry analysts, it puts them in a potential lose-lose situation in the eyes of some investors.

“You’re risking a sell off,” said David Corak, vice president of research at FBR Capital Markets. “There are risks ahead for them.”

Elephant in the room

One thing seems to be clear: The storage industry appears to have shifted in the second half of last year, from a frothy and optimistic market not seen since before the recession to a more sober and subdued industry climate, from a revenue, profits and pricing perspective.

James de Gorter, co-founder of Union Realtime, says it’s not a matter of things turning bad. “It’s still a strong market, it’s just not as strong as it was.”

Indeed, de Gorter notes that the five major REITs – Life Storage, CubeSmart, Public Storage, ExtraSpace Storage and National Storage Affiliates – saw revenue growth approaching the double-digit mark heading into 2016. That number fell to around 6 percent, or a little less, last year, but it was still a solid growth number.

The reason for the deceleration: increased supply of new storage facilities and thus more competition, weaker demand growth within existing facilities, higher operational and capital costs, and other factors. The changes were more pronounced in some sections of the country compared to others, but the general pattern was noticeable, says de Gorter.

The Big 4 storage REITs have experienced slower growth during recent quarters than it did during the previous year.

“You just can’t keep up”

Anne Hawkins, executive of vice president at STR Inc., an information services company, agreed that the storage industry remains in solid shape. “People are still bullish,” she said. “But it’s a case of we’ve done so well in recent years, you just can’t keep up with the pace.”

Wall Street has most definitely noticed the industry isn’t operating at its 2015 levels, pounding down the weighted stock prices of the major storage REITs by 8.1 percent last year, in stark contrast to the share prices of other real estate sectors, which saw a weighted increase of about 8.6 percent last year, according to FBR’s Corak.

So far this year, four of the five major REITs have seen share prices fall by 0.6 percent to 2.6 percent, even though the DOW and Nasdaq indices are both up year-to-date, by about 2 percent and 5.6 percent, respectively, according to a recent report by NGKF Capital Markets.

Looking ahead, deGorter sees revenue growth of around 4 percent in 2017 and rent pricing stagnation, if not actual price declines, in some sections of the country.

Finding the new normal

FBR’s Corak thinks storage REITs really have no choice: They’re going to have to lower expectations for the coming year. As a result, he thinks their guidance forecasts in coming days and weeks will be more “conservative and muted,” reflecting an industry that, for now, is simply not performing at its peak of two years ago.

If anything, he notes, many investors hope that storage REITs engage in a little “sandbagging,”–that’s when management teams issue overly conservative forecasts so they can continue to beat projections.

Life Storage (LSI) is expected to release its quarterly and annual earnings after trading closes on Wednesday, followed by CubeSmart on Thursday. The other storage REITs release their numbers later this month.

Jay Fitzgerald