Industrial Outdoor Storage is Having a Moment
Industrial Outdoor Storage (IOS) has been having a moment over the past few years.
Coupled with the rise in industrial demand, IOS is a growing category in industrial real estate reaching an estimated value of $200 billion in the U.S.
Because IOS is a relatively new hot topic in commercial real estate, there is limited information available on this category especially when it comes to data and underwriting.
This blog will give a brief introduction and overview of Industrial Outdoor Storage.
What is IOS?
Industrial Outdoor Storage (IOS) is a pretty simple asset. An Industrial Outdoor Storage area is a parcel of land that is either hard or compact paved with security in place and sometimes a small facility on the parcel.
IOS space is needed for a variety of uses:
Storage for vehicles
Service businesses (construction workers, landscapers etc)
And other logistical uses
IOS basically is a piece of property that has been paved and secured (i.e a fence) so it can be used for a variety of different outdoor storage needs.
A general size of an IOS site is 3-20 acres. An onsite building(s) would make up 0-20% of the property.
So Glorified Dirt is in Demand?
You may be thinking, IOS doesn’t sound like much more than some land with a fence surrounding it, and that statement really isn’t too far from the truth.
So what’s the big deal? Why are we seeing a rise in demand for IOS?
There are several factors contributing to the current IOS demand.
IOS space is in demand because of the current industrial boom that has taken place over the past several years. Since 2013, national industrial vacancy rates have declined from 7.8% to 4.5%, market rents per sq ft have increased almost 84%, year over year sales volume increased from 33.1B to 119B (in 2022), and inventory under construction has risen 357% from 135M to 617M (year to date).
Coupled with a rise in demand for industrial buildings, outdoor industrial space is naturally following.
Online Shopping, Onshoring, and a Fragmented Market
Changes in logistics patterns over the past few years (such as e commerce trends and the rise in onshoring) has increased industrial and IOS demand.
Only recently have institutional investors began to consolidate IOS portfolios. IOS was originally overlooked by many institutional investors. The big players would have the ability to consolidate and benefit from the economies of scale.
Local investors, private equity sources, and other smaller sources originally owned most IOS inventory, which is starting to change. Having large, key players is IOS can increase efficiency and decrease costs by economies of scale.
Barriers to Entry
Not all counties/cities find IOS particularly attractive from an aesthetics standpoint.
Therefore, zoning regulations can make it difficult for IOS to be a permitted use.
This gives land use counties such as Spartanburg, S.C.. a competitive advantage since zoning regulations are less stringent.
Zoning is not the only barrier. The overall rise in development/construction costs and land costs have squeezed the bottom line for IOS performance.
One benefit to IOS it that the development process is relatively simplistic.
IOS only requires some site work, minor development and improvements and can be finished in a relatively short time frame.
Demand and Market Rent
Areas with sizeable industrial real estate activity will typically see an IOS demand.
Port cities, such as our local ports in Charleston and Savannah are especially in need of IOS.
Although the cost per acre will vary greatly across each area, the average IOS monthly lease amount in the US ranges from $3500-$6500 per month per acre.
So, Who Are the Players?
As discussed above, the IOS market is still relatively fragmented, but there still are some main players in the IOS space:
EZ Storage Barns
So yes, glorified dirt is in demand, but the IOS market is still fragmented (in both owners and uses) and does not have historical data on a wide scale to study.
IOS may be as simple as a few acres of land with some gravel and a fence surrounding it or a state of the art industrial building on site with complex security and other features.
The variety of IOS sites matches the variety of IOS uses which can range from shipping container storage to equipment parking to materials storage.
Institutional investors are starting to gain market share in IOS, so market share will be shifting from individuals to larger key players.
If you’d like to discuss IOS, industrial properties, this blog, or commercial real estate, let’s connect!
McDaniel and Company