Industrial outdoor storage (iOS)—the “ugly duckling” of commercial real estate—is having a major moment. Commonly used IOS lots for storage facilities to support businesses from logistics to e-commerce have reached peak demand, and IOS is now a $200 billion asset class on the verge of becoming primarily institutional. is estimated to be.
David Eske of Cushman & Wakefield.
iOS, which also includes industrial service facilities, moves away from traditional warehouse space to store stationary items such as vehicles, tools, containers, and other materials. IOS can be laydown yards for truck/trailer parking, maintenance facilities or conventional truck terminals, as long as the property has a low building-to-land coverage ratio (typically less than 20%). So why are institutional investors, such as JPMorgan, and pension funds, such as the Ventura County Employees Retirement Association, providing enough capital for the space?
Here are three reasons why iOS is in high demand:
- High barrier to entry – IOS properties present limited taxable value, growth leads to limited job creation, and in some cases, IOS properties feature unsightly external storage without adequate screening. These limitations mean that existing IOS properties are coveted as new developments are highly regulated as cities generally do not find them attractive.
- It is difficult to start new developments due to adverse conditions coming from cities and the current zoning situation, construction cost and rising cost of raw industrial land.
- Finally, rising demand from the transportation, logistics and construction industries has constrained supply, raising the prospects for an environment of accelerated fare growth.
This is where the DFW market comes into play for potential tenants and investors. The average IOS rent in DFW ranges from $3,500 per acre per month to $6,500 per acre per month. This rate is highly desirable compared to IOS rent rates in coastal markets, which can range between $30K-$60K per acre per month.
The DFW IOS market has seen a lot of traction in recent months from both the institutional investor and corporate user side. Most recently, Zenith IOS and JPMorgan announced a $700 million IOS joint venture, closing several properties in Dallas in February. Other recent IOS investors include Bay Street Capital, Triten Real Estate Partners, Ultra Property Group and Hampton Partners. Users like CarMax, TuSimple, The Hub Group and Aurora Innovation have recently leased the DFW IOS space.
Owner-occupiers of these properties should consider their options as demand for this product type hits an all-time high in the DFW market. Likewise, traditional investors in industrial real estate looking for opportunities for high returns, simple management and significant rent growth should strongly consider this asset class.
David Eske is an Executive Director within Cushman & Wakefield’s Industrial Tenant Representation Group.
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