The industrial outdoor storage (IOS) market is poised to become a more institutionalized asset class with standardized pricing as investors are drawn to the sector’s attractive returns and low overhead.
IOS facilities can be used in a variety of ways, including overflow storage and vehicle parking and storage of emerging technologies like aerial delivery drones and autonomous trucks may further boost demand. However, supply issues are limited in some areas due to zoning constraints, according to a CommercialCafe industrial market analysis.
Investment activity in the sector has been accelerating. This year, Peakstone Realty Trust entered the sector with the acquisition of a 51-asset portfolio valued at $490 million, while a joint venture between Barings and Brennan Investment Group indicated it plans to invest $150 million in the sector. Realterm also purchased a 13-property IOS portfolio for $277 million, according to the analysis.
This activity is driven by attractive fundamentals. IOS rents have grown 123% since 2020, with in-place rents nationwide reaching $8.66 in August, up 6.1% year-over-year on limited supply. At the same time, the sector’s vacancy rate decreased by 30 basis points to 8.7%.
Inland hubs like Memphis, Atlanta and Phoenix have posted the strongest outdoor storage rent growth, while Southern California markets, which peaked in 2022 and 2023, have been cooling more recently, driven by increasing vacancy. In-place rents increased by 8.3% in Orange County, 8.1% in the Inland Empire and only 4.2% in Los Angeles. Vacancies rose from all-time lows of around 2% to 7.7% in the Inland Empire, 8.2% in Orange County and 8.6% in Los Angeles in August.
In the Midwest, Kansas City retained its status as the tightest industrial market with a vacancy rate of 4.5%. Vacancy rates in St. Louis and Minneapolis were also below the national average. Columbus, Ohio, on the other hand, continues to face low occupancy as vacancy rates reached 13.5% in August.
Across the country, nearly 340 million square feet of industrial space is under construction, and 205 million square feet had been delivered through August. Dallas/Ft. Worth leads industrial space construction with 28 million square feet underway, followed by Houston with 17 million square feet, Phoenix with 16 million square feet, Memphis with 12 million square feet and Atlanta with 10.5 million square feet.
Construction of manufacturing facilities is falling off after peaking in 2024. Less than 20 million square feet of manufacturing space have started construction this year, down from 200 million square feet started between 2021 and 2024. The prolonged development process is keeping manufacturing projects in the pipeline longer than logistics facilities.
New construction in the Northeast continued to lag behind national trends, contributing to consistently elevated premiums for new leases. The region’s four major industrial markets combined only have approximately 15 million square feet of space under construction, less than the pipeline of markets such as Phoenix or Houston.
Industrial sales totaled $43.2 billion year-to-date at the end of August, trading at an average of $137 per square foot. Dallas leads the country in industrial transactions year to date with $3.9 billion in sales.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.