The industrial outdoor storage (IOS) sector, once a quiet corner of commercial real estate, is experiencing a significant surge in demand and rent growth. This boom is fueled by the rapid expansion of artificial intelligence and quantum infrastructure, creating an urgent need for space to store large equipment and materials.
IOS properties are essentially paved or gravel lots where companies can store anything that can be kept outside, from construction equipment and vehicles to containers and supplies. These sites are critical support for logistics and construction, serving as staging grounds for major projects like new data centers.
Key Takeaways
- Industrial Outdoor Storage (IOS) demand is rising due to AI and quantum infrastructure growth.
- Rents for IOS properties have increased by 123% since 2020.
- Vacancy rates in IOS are roughly half that of bulk warehouses.
- Institutional investors are now entering a market traditionally dominated by small owners.
- Zoning restrictions pose the biggest risk and limit new supply.
AI and Quantum Drive New Demand
The construction of new data centers and advanced computing facilities requires vast amounts of equipment. Generators, specialized tractors, and other critical components often need secure, accessible outdoor space before they are installed. This need has pushed IOS into the spotlight.
Leo Addimando, CEO of Alterra IOS, a major player in this space, highlighted the sector's often overlooked nature. "It's the real estate hiding in plain sight," he stated. His company has acquired over 400 sites across the United States to meet this growing demand.
IOS Market Snapshot
- Estimated U.S. market value: Over $1 trillion
- Addressable market for private investment: Around $300 billion
- Rent growth since 2020: 123%
- Vacancy rate: Roughly half of bulk warehouses
These sites are typically located near major highways, ports, and other essential infrastructure. This strategic positioning makes them ideal for the logistical demands of large-scale development projects. While a structure can exist on an IOS site, it must occupy less than 25% of the total area, emphasizing the outdoor storage component.
Institutional Investors Enter the Market
The IOS sector was traditionally the domain of small, local owners. However, its strong performance and essential role in modern logistics are now attracting significant institutional investment. Big names are recognizing the potential in what was once considered a niche market.
In a notable move, Zenith IOS formed a $700 million joint venture with institutional investors advised by J.P. Morgan Asset Management. This partnership aims to build one of the largest IOS portfolios in the U.S., with a gross asset value projected to exceed $1.5 billion.
"It's bigger than self storage. It's bigger than manufactured housing. It's bigger than marinas. It's bigger than RV parks. It's bigger than a lot of categories of real estate that are already institutionally owned."
Blackstone has also made substantial commitments in the sector this year. They provided a $189 million loan to Alterra IOS for 49 properties and a $231 million loan to Jadian Capital for a 43-property portfolio. These investments underscore the increasing confidence in IOS as a viable and lucrative asset class.
What is Industrial Outdoor Storage?
Industrial outdoor storage (IOS) refers to properties primarily used for storing goods, vehicles, or equipment outdoors. These sites are crucial for logistics, construction, and various industrial operations, acting as critical staging areas. Unlike warehouses, the majority of the usable space is uncovered.
Strong Fundamentals and Rapid Rent Growth
The fundamentals of the IOS market are proving to be exceptionally strong, outperforming even the bulk warehouse sector that saw immense growth during the e-commerce boom. According to a report from Newmark, IOS has delivered twice the rent growth and maintains roughly half the vacancy rate compared to bulk warehouses.
Since 2020, IOS rents have soared by an impressive 123%. Cities like Phoenix, Memphis, and Atlanta are leading this rent growth. In some markets, the rents per acre for IOS properties are comparable to those for bulk warehouses, highlighting the value of these open-air sites.
Alterra IOS recently secured a $150 million loan facility from funds managed by Blue Owl Capital. This initial funding supports 21 properties across 12 states, with subsequent funding rounds planned for Alterra IOS Venture III, a closed-end fund with $925 million in equity commitments.
Jesse Hom, Chief Investment Officer for Blue Owl's real assets platform, emphasized their strategic entry into the sector. "Our investment in Alterra reflects Blue Owl’s focus on working with market-leading operators in high-growth, resilient sectors," Hom noted. "We see strong, sustained demand for IOS assets and believe Alterra is well positioned to lead in this evolving space."
Challenges and Future Outlook
Despite the robust growth, the IOS sector faces certain challenges. While demand from data centers is strong, some experts caution about potential overheating in that market. High interest rates, tariffs, and a weakening economy also present broader concerns for real estate investors.
The most significant risk, however, lies in zoning. Well-located IOS sites are scarce, covering an estimated 1.4 million acres across the U.S. Municipalities often resist new IOS developments because they typically do not create many jobs or generate high property taxes compared to other commercial uses.
"The No. 1 biggest risk is zoning, which goes back to why it’s so land-constrained," Addimando explained. "Not only are they not making more IOS real estate, no one’s giving zoning variances for IOS real estate." This scarcity, driven by regulatory hurdles, ultimately contributes to the sector's high demand and strong rent growth.
- Key Users: FedEx, J.B. Hunt, Maersk (transportation); TruGreen, ABC Supply, United Rentals (equipment/materials).
- Supply Constraints: Zoning regulations make it difficult to develop new IOS sites, leading to limited availability.
- Economic Factors: Interest rates, tariffs, and broader economic conditions remain important considerations for investors.
The ongoing need for staging areas for massive infrastructure projects, coupled with the inherent limitations on new supply, suggests that the industrial outdoor storage sector will likely continue to attract investor interest and demonstrate strong performance in the foreseeable future.
