Maturing Industrial Outdoor Storage Sector Sees New Opportunities For Growth

The industrial outdoor storage asset type has been maturing over the past several years and is now reaching a stage of transition that is creating new opportunities to create value for existing owners and new market entrants.

Beginning about five years ago, investors began flocking to the IOS market and  institutionalizing the asset class via aggregation. Smaller investment firms were purchasing IOS properties on a one-off basis in the $1 million to $5 million range to accumulate larger portfolios and add value through capital expenditures or triple net reimbursement structures. More recently, aggregators have been recapitalizing their portfolios with institutional backing from fund managers that have provided additional capital to continue building their portfolios.

Now, early investors are beginning to explore opportunities to exit their initial investments as robust demand has led to growing pricing in the sector. Increased allocations from pension funds and other institutions are expected to continue to boost pricing within this sector, according to a Colliers report on the IOS market.

As the sector grows increasingly sophisticated, regional and national owners have an opportunity to bring benefits to the sector such as better security, quality storage yards and specialized improvements. A focus on future proofing IOS sites, for example, might prompt an owner to install conduit to support electric vehicle charging on newly developed sites that could house electrified fleets in the future, said Colliers.

In addition, developers have begun to explore a mega-site development model with several 50+ acre sites slated to be developed primarily for trailer parking that will be used as regional hubs rather than for daily truck parking. As such, many of these sites are building truck repair facilities and driver amenities, including lounges, restroom and shower facilities, and dispatch offices.

Rental rates have more than doubled in most IOS markets over the past five years, but investors are now facing an inflection point, said Colliers. A nationwide slowdown in freight volumes is impacting trucking operations, the predominant user type for IOS. These entities are seeing business revenues decline and users are struggling to afford to pay the new market rates for the real estate they occupy. Investors are facing a decision, therefore, whether to renew in-place tenants or risk vacancy and re-tenanting costs to achieve higher rents.

Source: GlobeSt.