DEFINING INDUSTRIAL OUTDOOR STORAGE (IOS) VERSUS STANDARD INDUSTRIAL

Industrial outdoor storage is currently a $200 billion asset class within the broader industrial real estate class. But what is the difference between IOS and typical industrial assets? As an industry, we need to agree on a definition of IOS. At IOSList.com, we propose a simple framework with a three-pronged test for identifying IOS properties.

Is the primary use of this property for outdoor storage, indoor industrial use, or a combination of both? If both, what tips the property into either the IOS or standard industrial categories?

Floor Area Ratio Analysis

The Floor Area Ratio (FAR) is determined by dividing the area of the building by the total area of the lot:

Most industrial zoning codes limit FAR to a maximum of 50%, with many new zoning codes capping the FAR at 25%. IOS properties should be mostly land with only modest building coverage. Our rule here is simple:

Any industrial property with a FAR above 25% is likely NOT an industrial outdoor storage.

Income Breakdown Analysis

Another “tell” for a true IOS property will be the breakdown of income between income designated as building rent versus land rent. These will rarely be broken out in the lease, but we can infer the breakdown by assigning a market-standard rent to the building portion and comparing it to the balance of the rent payment.

Example: 123 Industrial Way comprises a 12,000 SF flex building with 4 acres of truck parking. Rent is $11 per square foot, NNN, on the building plus $4,000 per month per acre on the parking. Total annual rent for the building is $132,000 and total annual rent for the parking is $192,000. Since the parking portion of the rent is greater, this asset leans towards IOS.

Lease Terms

Lease terms may be the simplest test to screen for IOS properties. If the lease specifies that rent will be paid on a $ per square foot basis, then you are likely reviewing a typical industrial property. If your lease specifies that rent is based on a $ per-acre-per-month basis, then you likely have an IOS property.

Combine the Three Tests

To finish the analysis, let's combine the results of the three tests to guide our opinion of the property. Here are some quick rules:

Property 1:

FAR is under 25% + most income from land rent + lease quotes the rent as "per-acre-per-month" = IOS

Property 2:

FAR is over 50% + most income from building rent + lease quotes the rent in "$ psf" = standard industrial

Summary

The definition of industrial outdoor storage properties are still evolving, but market participants can rely on simple heuristics to determine whether they are reviewing an IOS property or a standard industrial property. A three-pronged test based on the floor area ratio, the income mix, and the lease language gives excellent clues.