Industrial Outdoor Storage Outpaces Bulk Warehouses In Rent Growth, Maintains Lower Vacancy Rates

Industrial Outdoor Storage (IOS), a segment often overlooked, is gaining traction among investors thanks to its impressive rent growth and consistently lower vacancy rates compared to bulk warehouses.

According to a recent Newmark report, IOS rents have surged by 123% since 2020, more than double the 58% increase seen in the bulk warehouse sector over the same period.

The IOS market encompasses approximately 1.4 million acres, with a total estimated value of $200 billion. Including rail yards, inland intermodal hubs, and port- and airport-adjacent land, the potential market capitalization could exceed $1 trillion.

Diverging market fundamentals between IOS and bulk warehouses are largely driven by supply-side constraints. While bulk warehouse development boomed during the post-pandemic surge in consumer demand—peaking in 2022—IOS growth has remained constrained due to stringent zoning regulations. As a result, few new purpose-built IOS facilities have been added. Many IOS properties are owner-occupied, and leasing tenants tend to stay long term.

Vacancy rates have edged up in both segments amid economic uncertainty and shifting policies. However, IOS vacancy has climbed at a much slower pace, reflecting its tighter market conditions.

Pricing in the IOS sector remains inconsistent due to a fragmented ownership base and limited institutional involvement. Lenders have traditionally been cautious due to limited experience in IOS financing. However, new debt products tailored to IOS are gradually improving access to capital and helping standardize valuations.

Recent acquisitions by major institutional investors suggest growing confidence in the IOS space. Notable transactions include Alterra IOS and J.P. Morgan Asset Management’s $490 million sale of a 51-property portfolio, Realterm’s $277 million acquisition from Brookfield, and Catalyst IOS’s $163.5 million sale of 18 assets.

Looking ahead, IOS demand is expected to be fueled by the expansion of data centers, manufacturing projects, and large-scale infrastructure developments. Emerging technologies—such as advanced air mobility and autonomous vehicle fleets—are also likely to push IOS from a fragmented niche to a mature, institutional-grade asset class, according to Newmark.

Source: GlobeSt.