- Over the past five years, the IOS market has grown, with institutional investors driving its evolution.
- Enhancements like better security, quality storage yards, and electric vehicle infrastructure can add value.
- While rental rates have surged, a slowdown in freight volumes presents challenges for renewing tenants at higher rents.
The industrial outdoor storage (IOS) sector has evolved significantly over the past several years, maturing into a more sophisticated and institutionalized asset class, as reported in GlobeSt.
As early investors begin to explore exits, new opportunities are emerging for both existing owners and new market entrants to add value through enhancements and strategic improvements.
Sector Growth, Transition
According to a report from Colliers, the sector is also seeing rising demand and higher prices, fueled by institutional capital and growing allocations from pension funds.
Around five years ago, smaller investment firms started accumulating IOS properties in the $1M–$5M range, adding value through capital expenditures and triple net lease structures. This aggregation has now led to recapitalization, with institutional backing from fund managers driving portfolio growth.
With rising demand and prices, early investors are now considering exits, creating a dynamic market environment.
Value Creation Opportunities
As the IOS sector matures, regional and national owners have the opportunity to introduce enhancements that can future-proof their properties.
Colliers suggests that adding features like improved security, quality storage yards, and specialized amenities can boost the value of these sites. For instance, installing conduit for electric vehicle charging on newly developed properties could support the growing trend of electrified fleets.
Developers are also exploring larger, mega-site models, with several 50+ acre developments in the pipeline. These sites are designed as regional hubs for trailer parking rather than daily truck parking, incorporating truck repair facilities and driver amenities like lounges, showers, and dispatch offices.
Inflection Point
While rental rates in IOS markets have more than doubled over the past five years, the sector is facing an inflection point.
A nationwide slowdown in freight volumes is affecting trucking operations, the primary users of IOS properties. And as trucking revenues decline, many users are finding it difficult to afford the higher market rents.
Investors are now faced with a strategic decision: renew leases with in-place tenants at lower rates or pursue higher rents at the risk of vacancy and re-tenanting costs.
In Summary
The maturing IOS sector offers new opportunities for growth and value creation, but investors must carefully navigate the challenges posed by shifting market dynamics. By focusing on property enhancements and future-proofing strategies, owners can position themselves to capitalize on the sector’s continued evolution.
