Now’s not the best time to be a prospective tenant in an industrial outdoor storage (IOS) facility, according to a new report from Marcus & Millichap.
A combination of strict zoning requirements, unfavorable building-to-land coverage ratios, and municipal development restrictions has confined many developers to traditional industrial properties, suppressing additional supply.
Therefore, existing IOS facilities “have become increasingly coveted by industrial users,” the firm said.
IOS vacancy fell under 3 percent in mid-2022, below the historical average, while IOS rents have advanced by nearly 30 percent on average since the end of 2019. General industrial rents rose 24 percent during the same span.
IOS Investors Seek Shorter Lease Terms
Mark Grossman, investment sales broker and IOS specialist at Northmarq, following the acquisition of Stan Johnson Company, tells GlobeSt.com that industrial outdoor storage has grown from a small niche asset class in the industrial market to a top industrial product type, now with its own subsets and niches.
“We continue to see private and institutional capital specifically target IOS assets, and new investors are entering the market quickly.
“A noticeable trend in recent years is that investors are getting smarter about how to analyze this market and are investing creatively.
“Perhaps counterintuitive to the net lease sector – where the longer the lease used to mean greater value – we are seeing IOS investors seek shorter lease terms as a value-add play.
“There are so many advantages to IOS that make it attractive, but there are barriers to entry as well. This continues to be a fragmented market, there’s low vacancy, very limited supply, low expenses, and significant value-add opportunities. These characteristics are drawing sophisticated and smart money to this space.”
Same-Day Delivery Should Grow 25% Through This Year
Marcus & Millichap said that the global same-day delivery services market is expected to grow by 25 percent through 2022, creating additional demand for last-mile storage.
“Rising fuel costs have also caused firms to place further emphasis on consolidating operations, making the infill nature of IOS particularly attractive. In either case, IOS will play a major role in supporting firms’ operations, efficiently linking the wider supply chain to individual municipalities,” according to the report.
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