Why is Industrial Outdoor Storage Gaining Popularity Amongst Commercial Real Estate Investors?

Why is industrial outdoor storage gaining popularity amongst commercial real Estate investors?

In the evolving landscape of commercial real estate, Industrial Outdoor Storage (“IOS”) is gaining attention. This asset class, characterized by open-air lots rather than warehouses or buildings, is attracting investors seeking stable returns and growth potential. As e-commerce grows and supply chains reconfigure, demand for these storage spaces is increasing. The appeal of IOS stems from economic trends, technology advancements, and market dynamics. With minimal infrastructure to maintain, lower costs, and locations near urban centers or transportation hubs, IOS properties offer an attractive return profile. The limited supply of suitable IOS properties, coupled with barriers to entry for new developments, creates scarcity that investors aim to capitalize on. In this post we will explore the reasons why IOS is growing in popularity among commercial real estate investors and how it's redefining value and opportunity in the sector.


  1. Understanding Industrial Outdoor storage


Industrial Outdoor Storage (IOS) is a distinct segment of commercial real estate that focuses on providing open-air storage solutions for a variety of industrial and commercial needs. Unlike traditional warehouses or enclosed storage facilities, IOS properties are primarily large, open lots designed to accommodate a wide range of storage requirements.

Key characteristics of IOS facilities include: 

  • Large, open spaces: IOS properties typically consist of expansive lots, often several acres in size, that can accommodate various storage needs.

  • Minimal built structures: Unlike warehouses, IOS facilities have few, if any, permanent buildings. Structures are usually limited to small offices, security booths, or basic amenities.

  • Flexible surfaces: Depending on the specific use, IOS lots may be paved, gravel-covered, or even left as compacted dirt surfaces.

  • Security features: Most IOS facilities are equipped with perimeter fencing, lighting, and often surveillance systems to ensure the safety of stored items.

Common uses for IOS facilities include:

  1.  Truck and trailer parking: With the growth of e-commerce and logistics, there's an increasing need for secure parking for commercial vehicles.

  2. Container storage: IOS lots provide space for storing shipping containers, both empty and full, supporting global trade and local distribution needs.

  3. Construction equipment storage: Contractors and construction companies use IOS facilities to store heavy machinery and equipment between projects.

  4. Bulk material storage: Industries such as lumber, steel, and construction materials use IOS for storing large quantities of raw materials.

  5. Vehicle fleet parking: Companies with large vehicle fleets, from rental car agencies to service providers, utilize IOS for secure overnight parking.

  6. Seasonal storage: Retailers and distributors use IOS for storing seasonal inventory or excess stock.

  7. Equipment and machinery storage: Various industries store large equipment, from agricultural machinery to industrial components.

The versatility of IOS facilities is one of their key strengths. They can adapt to changing market needs with minimal alteration, making them attractive to a wide range of potential tenants. Moreover, the simplicity of IOS properties translates into several advantages for investors:

  • Lower development costs: IOS facilities require minimal construction, often just land preparation and basic infrastructure.

  • Reduced maintenance: With fewer structures and systems to maintain, ongoing maintenance costs are significantly lower than traditional commercial properties.

  • Operational simplicity: Managing an IOS facility is generally less complex than operating a multi-tenant building or warehouse.

  • Flexibility: IOS properties can easily be reconfigured or repurposed to meet changing market demands or tenant needs.

As we delve deeper into the reasons behind the growing popularity of IOS among commercial real estate investors, it's important to understand that these properties, while simple in concept, play a huge role in supporting various industries and the broader supply chain ecosystem. Their significance in the commercial real estate landscape is growing, driven by evolving economic and logistical needs in our increasingly complex global economy.


2. low initial investment and development costs


One of the primary attractions of IOS for commercial real estate investors is the significantly lower upfront investment required compared to traditional industrial properties. This low barrier to entry makes IOS an appealing option for a wide range of investors, from those just entering the commercial real estate market to experienced investors looking to diversify their portfolios.

Let's break down the factors contributing to the low initial investment and development costs:

Minimal Construction Requirements:

  • Unlike warehouses or office buildings, IOS facilities don't require extensive construction.

  • The primary development often involves site preparation, which typically includes:

    • Land clearing and grading

    • Installation of a suitable surface (e.g., gravel, asphalt, or concrete paving)

    • Perimeter fencing for security

    • Basic lighting for nighttime operations and security

  • This simplified development process not only reduces costs but also shortens the time from acquisition to operation, allowing for quicker return on investment.

Lower Land Acquisition Costs:

  • IOS facilities can often utilize land that may be less suitable or desirable for other types of development.

  • These properties can be located in industrial zones or on the outskirts of urban areas where land prices are generally lower.

  • The flexibility in land requirements allows investors to acquire larger parcels at lower per-acre costs.

Reduced Infrastructure Expenses:

  • IOS properties require minimal utility connections compared to built structures.

  • Typically, only basic electrical service for lighting and possibly a small office or security booth is needed.

  • Water and sewer connections may be minimal or unnecessary, depending on the specific use.

Simplified Permitting Process:

  • The permitting and approval process for IOS facilities is often less complex and time-consuming than for traditional industrial or commercial buildings.

  • Fewer building code requirements apply to open-air storage facilities, streamlining the development process.

Lower Design and Engineering Costs:

  • With minimal structures, the need for extensive architectural and engineering services is reduced.

  • Site planning is generally straightforward, focusing on efficient layout and traffic flow rather than complex building designs.

Flexible Phasing Options:

  • IOS developments can often be phased, allowing investors to develop a portion of the property initially and expand as demand increases.

  • This phased approach can help manage cash flow and reduce initial capital requirements.

Comparative Cost Analysis:

To illustrate the cost advantage, let's consider a hypothetical comparison:

  • A 5-acre IOS facility might require an initial investment of $1-2 million for land acquisition and basic site development.

  • In contrast, a similarly sized warehouse facility could easily cost $5-10 million or more, depending on location and specifications.

This substantial difference in initial investment means that investors can:

  • Enter the market with less capital

  • Acquire larger properties for the same investment

  • Spread risk across multiple IOS properties instead of concentrating in a single, more expensive asset

Moreover, the lower development costs translate to reduced financial risk. With less capital tied up in physical structures, investors have more flexibility to adapt to market changes or exit the investment if necessary.

It's important to note that while initial costs are lower, the quality and strategic location of the property remain crucial factors. Savvy investors still need to carefully consider factors such as:

  • Proximity to transportation networks

  • Local zoning and land use regulations

  • Potential for future appreciation or alternative uses

  • Environmental considerations and potential remediation needs

In conclusion, the low initial investment and development costs of IOS properties provide an attractive entry point for investors looking to capitalize on the growing demand for flexible storage solutions. This cost advantage, combined with the potential for strong returns, makes IOS an increasingly popular choice in the commercial real estate market.


3. Reduced ongoing maintenance and operating costs


Another compelling advantage of IOS facilities is the significantly reduced ongoing maintenance and operating costs compared to traditional commercial real estate assets. This cost efficiency contributes greatly to the attractiveness of IOS as an investment option. Let's delve deeper into the factors that contribute to these reduced costs:

Minimal Building Maintenance:

  • Unlike traditional warehouses or office buildings, IOS facilities have few, if any, enclosed structures. This absence of buildings eliminates many common maintenance issues:

    • No roof repairs or replacements

    • No interior painting or flooring maintenance

    • No HVAC system upkeep or replacements

    • Minimal plumbing and electrical system maintenance

  • The primary maintenance focus is on the land itself, which typically involves:

    • Occasional resurfacing or repaving of storage areas

    • Upkeep of perimeter fencing and security features

    • Maintenance of basic lighting systems

Lower Utility Costs:

  • IOS facilities consume significantly less energy compared to enclosed structures:

    • No heating or cooling requirements for large indoor spaces

    • Minimal electricity usage, primarily for outdoor lighting and security systems

    • Little to no water consumption, except for basic amenities or landscaping needs

  • This reduced utility usage not only lowers operating costs but also aligns with sustainability goals, potentially making IOS properties more attractive to environmentally conscious tenants and investors.

Simplified Property Management:

  • The straightforward nature of IOS facilities often allows for more streamlined property management:

    • Less complex tenant improvements or customizations

    • Fewer day-to-day maintenance issues to address

    • Simpler lease structures, often with clearer delineation of responsibilities between landlord and tenant

  • This simplicity can lead to lower property management fees or the ability to self-manage more easily, further reducing operating costs.

Reduced Insurance Premiums:

  • With fewer structures and less complex operations, IOS facilities often benefit from lower insurance premiums:

    • Reduced risk of building-related claims (e.g., fire, water damage)

    • Lower liability risks compared to properties with frequent visitor traffic

    • Simplified coverage needs focusing primarily on land and basic infrastructure

Lower Property Taxes:

  • In many jurisdictions, the assessed value of IOS properties may be lower than that of developed industrial properties:

    • Less improved land often results in lower property tax assessments

    • Fewer structures and improvements to be factored into property valuations

  • This can lead to significant savings in annual property tax expenses, a major component of operating costs for commercial real estate.

Minimal Landscaping and Grounds Maintenance:

  • IOS facilities typically require less extensive landscaping compared to other commercial properties:

    • Focus is on functional aspects rather than aesthetic appeal

    • Maintenance often limited to basic weed control and occasional grading or leveling

  • This reduces ongoing costs associated with landscaping services and water usage for irrigation.

Flexible Tenant Improvements:

  • When tenant improvements are needed, they are often simpler and less costly in IOS facilities:

    • Improvements might include adding gravel or paving to specific areas

    • Installing basic security features or lighting for particular tenants

    • These improvements are generally less expensive and more flexible than buildouts in traditional commercial spaces

 Long-Term Cost Stability:

  • The simplicity of IOS facilities can lead to more predictable long-term costs:

    • Less exposure to fluctuating costs of building materials for repairs

    • Reduced vulnerability to increasing costs of skilled labor for complex building systems

    • Greater ability to forecast and budget for future expenses

 Environmental and Regulatory Compliance:

  • While still subject to environmental regulations, IOS facilities often face fewer complex compliance issues:

    • Simpler stormwater management requirements compared to large impervious building surfaces

    • Fewer concerns related to indoor air quality or hazardous materials in building components

  • This can lead to reduced costs and risks associated with environmental compliance and potential remediation.

 

Comparative Operating Cost Analysis:

To illustrate the cost advantage, consider a hypothetical comparison:

  • A 5-acre IOS facility might have annual operating costs of $50,000-$100,000, primarily for basic maintenance, property taxes, and minimal utilities.

  • In contrast, a similarly sized warehouse facility could easily incur $200,000-$500,000 or more in annual operating costs, depending on location and specifications.

This substantial difference in operating costs translates directly to improved net operating income (NOI) and, consequently, higher potential returns for investors. The lower ongoing costs also provide a buffer during economic downturns or periods of reduced occupancy, enhancing the resilience of IOS investments.

 

In conclusion, the reduced ongoing maintenance and operating costs of IOS facilities contribute significantly to their appeal as investment properties. This cost efficiency, combined with the potential for stable income and appreciation, makes IOS an increasingly attractive option in the commercial real estate landscape. As investors seek to optimize their portfolios for long-term performance and stability, the operational simplicity and cost-effectiveness of IOS properties offer a compelling value proposition.


4. Strong Demand Drivers


The growing popularity of IOS among commercial real estate investors is largely fueled by robust and increasing demand for these facilities. Several key factors are driving this demand, making IOS an attractive investment option with strong potential for long-term growth. Let's explore these demand drivers in detail:

E-commerce Growth and Last-Mile Logistics:

  • The explosive growth of e-commerce has revolutionized retail and logistics:

    • Online sales continue to capture an increasing share of total retail sales

    • Consumers expect faster delivery times, often same-day or next-day

  • This shift has created a need for strategically located storage and distribution points:

    • IOS facilities serve as crucial hubs for last-mile delivery operations

    • They provide space for parking delivery vehicles, storing inventory, and staging shipments

  • Many e-commerce companies and third-party logistics providers (3PLs) are seeking IOS facilities to optimize their distribution networks

Supply Chain Reconfiguration:

  • Recent global events have highlighted the vulnerabilities in just-in-time inventory systems:

    • Companies are moving towards "just-in-case" inventory management

    • This shift requires more storage space for safety stock and buffer inventories

  • IOS facilities offer flexible storage solutions for:

    • Excess inventory

    • Shipping containers awaiting processing or distribution

    • Seasonal goods and fluctuating stock levels

  • The ability to quickly scale storage needs makes IOS attractive for businesses adapting to supply chain challenges

Trucking and Transportation Industry Needs:

  • The growth in goods movement has increased demand for truck and trailer parking:

    • Stricter regulations on driver hours require more places for trucks to park safely

    • Urban areas often lack sufficient parking for large commercial vehicles

  • IOS facilities provide secure, accessible parking for:

    • Long-haul truckers needing rest stops

    • Local delivery fleets requiring overnight parking

    • Trailer storage for logistics companies

Construction and Infrastructure Projects:

  • Ongoing urban development and infrastructure renewal drive demand for construction equipment storage:

    • Contractors need secure locations to store equipment between projects

    • IOS facilities offer flexible terms that align with project timelines

  • These properties also serve as staging areas for large-scale construction projects:

    • Storage of materials and prefabricated components

    • Assembly and preparation areas for construction elements

Automotive Industry Needs:

  • The automotive sector, including manufacturers, dealerships, and rental companies, requires significant storage space:

    • Overflow parking for dealership inventory

    • Storage for fleet vehicles (rental cars, company fleets, etc.)

    • Staging areas for vehicle distribution and logistics

  • IOS facilities provide cost-effective solutions for these automotive storage needs

Retail and Wholesale Inventory Management:

  • Retailers and wholesalers are adapting to changing consumer behaviors:

    • Need for buffer stock to meet unpredictable demand

    • Storage for seasonal inventories

  • IOS offers flexible space for:

    • Overstock storage

    • Returns processing centers

    • Bulk goods awaiting distribution

Manufacturing Sector Requirements:

  • Manufacturers often require additional space for:

    • Raw material storage

    • Finished product inventory

    • Equipment and machinery storage during facility upgrades or reconfigurations

  • IOS provides a cost-effective solution for these temporary or fluctuating storage needs

Energy and Utilities Sector:

  • Companies in the energy and utilities sectors need storage for:

    • Equipment and materials for maintenance and repair operations

    • Vehicles and machinery used in field operations

    • Temporary storage during infrastructure upgrades or expansions

Urbanization and Land Use Pressures:

  • As urban areas densify, there's increasing pressure on land use:

    • Traditional industrial areas are being redeveloped for mixed-use or residential purposes

    • This displacement creates demand for IOS facilities on the urban fringe

  • IOS offers a land-use efficient solution for necessary industrial activities that don't require enclosed structures

Flexibility for Emerging Industries:

  • IOS facilities are well-positioned to meet the needs of emerging industries:

    • Electric vehicle charging stations for commercial fleets

    • Staging areas for drone delivery services

    • Storage for modular construction components

  • The adaptability of IOS makes it suitable for evolving business models and technologies

Government and Municipal Needs:

  • Local governments and municipal agencies require storage for:

    • Maintenance equipment and vehicles

    • Emergency response resources

    • Seasonal equipment (e.g., snow plows, road maintenance machinery)

  • IOS facilities offer cost-effective solutions for these public sector storage needs

The convergence of these demand drivers creates a robust market for IOS facilities. This strong and diverse demand base contributes to the stability and growth potential of IOS as an investment class. Investors in IOS benefit from:

  • - Multiple potential tenant industries, reducing reliance on any single sector

  • - Ability to adapt to changing market needs with minimal property modifications

  • - Potential for long-term leases with essential businesses and services

As these trends continue to evolve, the demand for IOS facilities is likely to remain strong, supporting the growing interest from commercial real estate investors. The ability of IOS to meet diverse storage needs in an increasingly complex and fast-paced economic environment positions it as a resilient and attractive investment option for the foreseeable future.


5. Lower barrier of entry compared to other CRE types


Contrary to traditional commercial real estate investments, IOS often presents lower barriers to entry for investors. This accessibility makes IOS an attractive option for those looking to enter or expand their presence in the commercial real estate market. Here's how IOS offers a more accessible entry point:

Reduced Capital Requirements:

  • IOS facilities typically require less upfront investment compared to other commercial properties:

    • No need for expensive building construction

    • Lower land improvement costs (primarily grading and basic paving)

    • Minimal infrastructure requirements

Simpler Development Process:

  • The development of IOS properties is often less complex:

    • Shorter construction timelines

    • Fewer building code requirements to navigate

    • Simpler permitting processes in many jurisdictions

Flexible Zoning Options:

  • IOS can often be developed on land zoned for various industrial uses:

    • More options for suitable locations compared to specific-use properties

    • Potential to utilize land not suitable for other commercial developments

Lower Financing Hurdles:

  • The lower cost basis of IOS properties can make financing more accessible:

    • Smaller loan amounts required

    • Potentially easier to qualify for loans due to lower risk profile

    • More options for creative financing solutions

Reduced Expertise Requirements:

  • Managing an IOS facility typically requires less specialized knowledge:

    • Simpler operations compared to managing complex buildings

    • Fewer systems and technologies to understand and maintain

Scalability:

  • IOS investments can be more easily scaled:

    • Start with a smaller parcel and expand as capital allows

    • Add improvements gradually to increase property value over time

Fewer Tenant Improvement Costs:

  • IOS properties often require minimal customization for new tenants:

    • Reduced need for expensive build-outs or renovations

    • Lower costs associated with tenant turnover

Less Competition from Institutional Investors:

  • Large institutional investors often focus on higher-value properties:

    • Creates opportunities for individual and smaller investors in the IOS space

    • Less bidding competition for available properties

Easier Due Diligence:

  • The simplicity of IOS properties can streamline the due diligence process:

    • Fewer complex systems to inspect and evaluate

    • More straightforward assessment of property condition and value

Faster Time to Market:

  • IOS properties can often be brought to market more quickly:

    • Shorter development timelines

    • Less time required for tenant improvements

    • Quicker lease-up process due to high demand

These factors combine to make IOS a more accessible entry point for investors looking to enter the commercial real estate market or diversify their existing portfolios. The lower barriers to entry allow for greater flexibility and reduced risk, making IOS an attractive option for a wide range of investors, from beginners to experienced real estate professionals looking to expand into new areas.


6. Flexibility and adaptability


IOS facilities stand out in the commercial real estate landscape for their remarkable flexibility and adaptability. This characteristic is a key factor driving their popularity among investors and tenants alike. Let's delve into the various aspects of this flexibility:

Versatile Use Cases:

  • IOS facilities can accommodate a wide range of storage needs:

    • Truck and trailer parking

    • Container storage

    • Heavy equipment storage

    • Bulk material storage (e.g., lumber, piping, construction materials)

    • Vehicle fleet parking

    • Seasonal inventory storage

  • This versatility allows investors to pivot quickly in response to market demands

Easy Reconfiguration:

  • Unlike built structures, IOS lots can be easily reconfigured:

    • Adjustable lot sizes to accommodate different tenant needs

    • Simple to add or remove fencing for security

    • Ability to change surface materials (e.g., gravel to asphalt) as needed

  • This adaptability minimizes downtime between tenants and reduces costs associated with tenant turnover

Scalability:

  • IOS properties offer excellent scalability options:

    • Investors can start with a smaller parcel and expand as demand grows

    • Easy to subdivide larger lots for multiple tenants

    • Potential to add basic structures (e.g., small offices, storage sheds) to enhance functionality

  • This scalability allows for gradual investment and growth strategies

Diverse Tenant Base:

  • The flexibility of IOS attracts a wide range of industries:

    • Logistics and transportation companies

    • Construction firms

    • Retailers (for overflow inventory)

    • Automotive businesses

    • Manufacturing companies

    • Government agencies

  • A diverse tenant base can provide stability and reduce vacancy risks

Adaptability to Economic Changes:

  • - IOS facilities can quickly adapt to shifting economic conditions:

    • During economic downturns, demand may increase for cost-effective storage solutions

    • In growth periods, IOS can support expanding businesses needing additional space

  • This economic resilience makes IOS an attractive investment across various market cycles

Seasonal Flexibility:

  • IOS can easily accommodate seasonal business fluctuations:

    • Retail overflow storage during peak seasons

    • Agricultural equipment storage during off-seasons

    • Construction material storage for weather-dependent projects

  • This flexibility allows for maximized occupancy and revenue throughout the year

Technology Integration:

  • The open nature of IOS facilities makes it easy to integrate new technologies:

    • Installation of solar panels for energy generation

    • Implementation of IoT devices for security and inventory tracking

    • Addition of EV charging stations for electric vehicle fleets

  • This adaptability to technological advancements can enhance property value over time

Zoning and Land Use Flexibility:

  • In some cases, IOS properties may have more flexible zoning options:

    • Potential for rezoning to higher-value uses in the future

    • Ability to serve as interim use for land slated for future development

  • This flexibility can provide additional long-term value appreciation potential

Environmental Adaptations:

  • IOS facilities can be adapted to meet changing environmental regulations:

    • Implementation of stormwater management systems

    • Addition of permeable surfaces to reduce runoff

    • Installation of dust control measures

  • This adaptability helps maintain compliance and property value as regulations evolve

Lease Structure Flexibility:

  • IOS properties allow for various lease structures:

    • Short-term leases for temporary storage needs

    • Long-term leases for stable tenants

    • Flexible pricing based on usage or seasonality

  • This leasing flexibility can optimize occupancy and revenue

Expansion and Contraction Capabilities:

  • Tenants can easily expand or contract their space needs:

    • Add or reduce rented area without significant modifications

    • Accommodate business growth or downsizing without relocating

  • This flexibility is particularly attractive to growing businesses or those with fluctuating space needs

Adaptation to Supply Chain Changes:

  • IOS facilities can quickly adapt to evolving supply chain strategies:

    • Support for just-in-time inventory management

    • Accommodation of safety stock in just-in-case models

    • Flexibility for cross-docking and transloading operations

  • This adaptability makes IOS valuable in the rapidly changing logistics landscape

Multi-Use Potential:

  • Some IOS facilities can serve multiple functions simultaneously:

    • Combine storage with light assembly or processing areas

    • Provide both employee parking and equipment storage

    • Offer shared spaces for complementary businesses

  • This multi-use potential can maximize property utilization and value

The flexibility and adaptability of IOS facilities provide significant advantages in the commercial real estate market. These properties can evolve with changing market demands, technological advancements, and regulatory requirements, often with minimal capital investment. This adaptability not only helps maintain high occupancy rates but also positions IOS investments for long-term value appreciation.

For investors, the flexibility of IOS translates to reduced risk and increased opportunities. It allows for easier pivoting in response to market changes, diversification of tenant base, and the ability to capture value from emerging trends in industrial and logistics sectors. As businesses continue to seek agile and cost-effective storage solutions, the flexibility of IOS is likely to remain a key driver of its popularity in the commercial real estate market.

 

7. Strong and stable cash flows


One of the most attractive features of IOS facilities for commercial real estate investors is their potential to generate strong and stable cash flows. This characteristic is a key factor in the growing popularity of IOS as an investment asset. Let's explore the various aspects that contribute to these robust cash flows:

Long-Term Lease Agreements:

  • IOS facilities often attract tenants seeking long-term commitments:

    • Many businesses require consistent, reliable storage solutions

    • Relocating large-scale storage operations can be costly and disruptive for tenants

  • Typical lease terms for IOS properties:

    • Range from 3 to 10 years, with some extending even longer

    • Often include options for lease extensions

  • Benefits of long-term leases:

    • Provide predictable income streams for investors

    • Reduce vacancy risks and turnover costs

    • Allow for more accurate long-term financial planning

Lower Turnover Rates:

  • IOS tenants tend to have lower turnover rates compared to other commercial real estate sectors:

    • High costs associated with moving large equipment or inventory discourage frequent relocations

    • Established logistics networks make tenants reluctant to change storage locations

  • Implications of low turnover:

    • Reduced vacancy periods between tenants

    • Lower marketing and leasing costs

    • Minimized need for property modifications between tenants

Diverse Tenant Base:

  • IOS facilities can accommodate a wide range of industries:

    • Logistics and transportation companies

    • Construction firms

    • Retailers (for inventory overflow)

    • Automotive businesses

    • Manufacturing companies

    • Government agencies

  • Benefits of tenant diversity:

    • Reduces dependency on any single industry or economic sector

    • Provides a hedge against industry-specific downturns

    • Allows for optimization of tenant mix to maximize rental income

Triple Net (NNN) Lease Structures:

  • Many IOS properties operate under triple net lease agreements:

    • Tenants are responsible for property taxes, insurance, and maintenance

    • This structure passes through most operating expenses to the tenant

  • Advantages of NNN leases for investors:

    • More predictable net income

    • Reduced exposure to increasing operating costs

    • Simplified property management and accounting

High Occupancy Rates:

  • IOS facilities often maintain high occupancy rates due to:

    • Growing demand for outdoor storage across various industries

    • Limited supply of suitable storage facilities in prime locations

    • Flexibility to accommodate different storage needs

  • Impact of high occupancy:

    • Maximized rental income potential

    • Reduced carrying costs during vacancy periods

    • Enhanced property value and attractiveness to potential buyers

Rent Escalations:

  • IOS leases typically include provisions for regular rent increases:

    • Annual escalations based on fixed percentages or CPI (Consumer Price Index)

    • Step-ups at predetermined intervals during the lease term

  • Benefits of rent escalations:

    • Provide a hedge against inflation

    • Ensure growing cash flows over time

    • Contribute to increasing property values

Low Capital Expenditure Requirements:

  • IOS facilities generally require lower ongoing capital expenditures compared to traditional commercial properties:

    • Minimal building structures to maintain or upgrade

    • Basic infrastructure (paving, fencing, lighting) has a long useful life

  • Impact on cash flows:

    • Higher percentage of rental income translates to net operating income

    • Reduced need for capital reserves

    • More predictable and stable cash flows over time

Potential for Additional Revenue Streams:

  • IOS properties may offer opportunities for ancillary income:

    • Truck weighing stations

    • Fueling facilities

    • Small office or retail spaces for related services

  • These additional revenue sources can enhance overall cash flows without significant additional costs

Resilience During Economic Downturns:

  • IOS facilities have demonstrated resilience during economic uncertainties:

    • Storage needs often persist or even increase during recessions

    • Diverse tenant base provides a buffer against industry-specific downturns

  • This resilience contributes to:

    • More stable occupancy rates during economic fluctuations

    • Consistent cash flows even in challenging market conditions

Flexibility in Lease Structures:

  • IOS properties can accommodate various lease structures to optimize cash flows:

    • Blend of long-term and short-term leases to balance stability and market rate capture

    • Inclusion of percentage rent clauses for high-performing tenants

    • Seasonal or flexible pricing strategies to maximize overall income

Lower Operating Costs:

  • The simplicity of IOS facilities leads to lower operating costs:

    • Minimal utilities (primarily outdoor lighting)

    • Reduced maintenance requirements compared to buildings

    • Simplified property management needs

  • Lower operating costs result in:

    • Higher net operating income

    • Improved cash flow stability

    • Enhanced overall returns for investors

Market Rate Adaptability:

  • The relatively short development time for IOS facilities allows for quicker adaptation to market rates:

    • New leases can more closely reflect current market conditions

    • Easier to adjust pricing strategies in response to supply and demand shifts

The strong and stable cash flows associated with IOS investments are a result of multiple factors working in tandem. From long-term leases and diverse tenant bases to lower operating costs and high occupancy rates, these properties offer a compelling value proposition for investors seeking reliable income streams. The resilience of IOS cash flows, even in challenging economic conditions, further enhances their attractiveness as a commercial real estate investment. As the demand for flexible storage solutions continues to grow, well-located and well-managed IOS facilities are likely to maintain their position as strong cash flow generators in the commercial real estate landscape.


conclusion


The rising popularity of IOS among commercial real estate investors is driven by its unique combination of simplicity, flexibility, and strong market fundamentals. With lower upfront costs, reduced maintenance requirements, and the potential for stable cash flows, IOS presents an attractive opportunity for investors looking to diversify their portfolios.

As urban areas continue to evolve and supply chains adapt to new realities, the demand for strategically located outdoor storage is likely to grow. For investors willing to look beyond traditional asset classes, IOS offers a compelling blend of low-risk operations and potential for attractive returns.

However, as with any investment, thorough due diligence is crucial. Factors such as location, zoning regulations, environmental considerations, and local market dynamics should be carefully evaluated. But for those willing to explore this often-overlooked sector, Industrial Outdoor Storage could prove to be a valuable addition to a diversified commercial real estate portfolio.

In a real estate landscape that increasingly values efficiency and adaptability, IOS stands out as a sector poised for continued growth and stability. Its unique characteristics make it an intriguing option for investors seeking to capitalize on evolving industrial and logistical needs in our rapidly changing economy.


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