Industrial outdoor storage (“IOS”) has gained significant traction as a sought-after property segment and has transitioned from a specialized market primarily dominated by small private investors and independent operators to an established commercial real estate asset class.
The demand for this sector surged during the pandemic due to the requirement for additional space to accommodate container storage and alleviate congestion at ports. According to experts interviewed by WMRE Common Area, the U.S. IOS market, a specialized subset within the broader industrial asset category, was estimated to hold a value ranging from $130billion to $200 billion as of August 2022.
IOS refers to industrial land sites that are zoned for outdoor storage purposes. These sites are typically located in close proximity to ports or inland hubs and serve as a designated space used by industrial tenants for the storage of vehicles, construction equipment, building materials, or containers, in an open-air setting. IOS properties are characterized by:
The US IOS market has experienced increasing demand due to the growing need for e-commerce and last-mile delivery services, alongwith major disruptions in the supply chain. This surge in demand, combined with limited supply, regional ownership, and significant investments, has led to a strengthening of the supply-demand dynamics within the sector since 2018. As a result, the IOS market has witnessed lower vacancy rates and higher rent growth, further solidifying its position as a lucrative market segment.
Notes: *As of 2Q; ** Based on direct, triple-net leases, all values from 2Q of each year; IOS Vacancy and rents representative of enclosed space on IOS properties
The IOS market, similar to single-family rentals and self-storage, is currently undergoing the process of becoming fully institutionalized. However, its increasing significance in last-mile distribution makes it an important topic of discussion and consideration for investors.
Prominent players in the finance industry, including Industrial Outdoor Ventures, J.P. Morgan, Zenith IOS, Alterra Property Group, Criterion Group, Catalyst Investment Partners, Icon Equities, Leste Real Estate U.S., and Columbia Pacific Advisors, have made substantial investments in this expanding sector.
Iconic Equities and Leste Real Estate U.S. established a programmatic joint venture supported by approximately $150 million in institutional capital. This venture aims to acquire $400 million worth of industrial outdoor storage facilities across the United States.
As the IOS market continues to gain traction and recognition, it presents an intriguing investment opportunity for those seeking a balance of anticipated growth and stability of income. With its distinctive characteristics, including lower FAR, higher rents, and limited supply, IOS properties offer a defensive position in the market while providing the potential for significant appreciation. However, tapping into the vast potential of the IOS market requires specialized knowledge and expertise. Given its niche nature and fragmented market, comprehensive understanding and careful analysis of investment opportunities are vital.
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