Why Outdoor Storage Is Becoming a Serious Industrial Play
The industrial market is continuing to evolve beyond the warehouse and logistics facilities that made the sector a commercial real estate favorite. In particular, industrial outdoor storage is quickly stepping into the spotlight. The niche asset type has become one of the most attractive new industrial verticals this year.
Andrew Wiesemann, first VP and an associate director at Matthews, says industrial outdoor storage market is offering investors the similar yield profiles that they once found in warehouse and logistics facilities. As a result, investors are flocking to the asset class, fueling strong investment sales volumes.
No Longer a Niche Asset
The warehouse and logistics sectors have stabilized, leaving many industrial investors searching for alternative investment assets within the industrial space. Outdoor storage properties are now benefiting from the same demand fundamentals and limited supply that originally fueled growth in the warehouse space.
"Investors are seeing the asset class mature. That growth and evolution is creating more activity and opportunities for new players, who traditionally were focused on the warehouse segment," says Wiesemann.
With heightened investor interest and demand, industrial outdoor storage has evolved into a mainstream industrial asset class. Wiesemann calls it a "strong asset class that will stay active for a long time." Beyond healthy yields, the asset class's staying power is helping to lure in a new set of buyers. Investors are finding attractive rent structures, leasing demand and site functions and operations.
"Investors are looking for other alternative investment opportunities to achieve yields, and they are getting a lot smarter in understanding this space," explains Wiesemann "The types of assets that they are buying in their second and third rounds are more elevated than they once were."
The Key Qualities of a Good IOS Facility
While the fundamentals are similar to those once found in warehouses, industrial outdoor storage functions much differently. There are a few critical characteristics that investors should look at when vetting a prospective facility. Power is at the top of Wiesemann's list. Outdoor storage properties need heavy power and strong utility infrastructure to operate properly.
Beyond power, Wiesemann says that the asset class has evolved beyond gravel yards. Users want fully paved sites and easy accessibility to the interstate. These features also elevate the property to an institutional-grade asset.
"Some smart groups are willing to come in and make these improvements or select sites with these characteristics, and it is benefiting their long-term business plan," says Wiesemann. "It is creating a more institutional-grade asset, with higher market rent potential and better operations."
It isn't only the investors that are becoming more sophisticated. Users are demanding these features, and many are willing to pay a premium when they can find it. Wiesemann says that the trend is particularly strong in port towns, which tend to attract high-quality and long-term users. However, areas with high construction activity or with ample vacant yards are also prime locations for outdoor storage investment. Wiesemann pinpointed markets like Dallas and Savannah as places where the asset class is particularly strong.
That diversity has led to a promising future for the class. "I think in the next five years," says Wiesemann, "you're going to see more larger institutional capital coming into the space, recapping a lot of groups, and really creating a core asset type."
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Source: GlobeSt/ALM