The often-overlooked industrial outdoor storage (IOS) has recently been taking center stage, appealing to investors with outsized rent growth and lower vacancy rates than more visible segments. The IOS segment has delivered 123% rent growth since 2020, outpacing bulk warehouse, which posted gains of 58% over the same period, according to a report from Newmark.
The IOS market represents 1.4 million acres of space worth $200 billion. When including rail yards, inland intermodals and sea- and airport-related land, the total market capitalization for IOS could exceed $1 trillion.
Supply-side pressure is driving divergent fundamentals between IOS and bulk warehouse inventories, although IOS is consistently a tighter market, according to Newmark. Bulk warehouse development soared in the post-pandemic period as consumer demand surged, peaking in 2022. Demand has since normalized.
IOS faces greater zoning restrictions, which limited purpose-built inventory additions during this period. Many assets in this segment are owner-occupied, and tenants who lease tend to remain in place.
Vacancy has increased for both sectors, as economic and policy uncertainty has dampened demand. However, IOS vacancy has been increasing at a much slower rate than, according to the report.
IOS is characterized by inconsistent pricing because it has a disparate ownership base and limited institutionalization. Lenders have less experience with IOS acquisitions and developments, which has complicated the pricing picture, but new tailored debt products are increasing access to capital and standardizing pricing for these assets.
Several recent acquisitions by major equity managers signal an increasing shift to institutional ownership in the segment. Transactions include Alterra IOS and J.P. Morgan Asset Management’s sale of a $490 million, 51-property portfolio, Realterm’s $277 million portfolio acquisition from Brookfield and Catalyst IOS’ $163.5 million sale of 18 properties.
The development of data centers, manufacturing facilities and major infrastructure projects will drive long-term demand within the IOS sector, according to Newmark. Emerging technologies like advanced air mobility and autonomous vehicle fleets will also further drive IOS from a niche, fragmented market into a maturing, standardized asset class, the brokerage forecasts.
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