IOS: The new $200 billion opportunity in commercial real estate
The "newest" CRE asset class has been around for decades. Hiding in plain sight.
INDUSTRIAL OUTDOOR STORAGE: THE NEW $200 BILLION OPPORTUNITY IN COMMERCIAL REAL ESTATE
Industrial outdoor storage, also known as IOS, is a burgeoning property type in the commercial real estate sector, with an estimated market value of $200 billion in the U.S. This type of property has become a hot investment opportunity, particularly during the pandemic, as industrial rents rise, leading tenants to explore more affordable storage options.
Defining the IOS Space
While there is no agreed-upon definition for IOS properties, they are typically characterized by their physical constraints and simplicity, which make them easy to manage. These properties can include truck yards, maintenance shops, shipping container storage lots, equipment rental spaces, and empty lots near ports. Investors view IOS properties as an appreciating asset closely tied to logistics and industrial sites, with little room for further outward growth.
Due to the competitive market for IOS assets, prices are rapidly appreciating, making it harder for users who need these spaces to pay rising rents. Nevertheless, investors see IOS as a highly favored space, offering a defensive position in the marketplace, as they benefit from a lack of new supply, with few cities zoning for more container storage or truck yards.
IOS spaces typically exist next to ports, rails, airports, or intermodal transport spots, making the map of valuable real estate more diverse. This diversity is seen in places such as Los Angeles and Charleston, South Carolina, with port access, as well as Indianapolis and Oklahoma City, with truck terminals and a central U.S. location.
IOS Won't Create Any Pretty Pictures, Except the P&L
Tom Barbera, CEO of Industrial Outdoor Ventures, started his current venture in 2016 after working as an industrial broker since 1993. Barbera highlights that the fundamentals of IOS have always been strong, but it has traditionally been overlooked due to its lack of "brochure-quality industrial real estate." However, since 2021, IOS has been gaining momentum, with numerous large investment banks partnering with funds that focus specifically on IOS.
Large Asset Managers Enter the Space
Some of the big names in the space include J.P. Morgan Global Alternatives and Zenith IOS, Alterra Property Group, and Criterion Group and Columbia Pacific Advisors. While the average deal size for IOS properties ranges from $5 million to $15 million, many of the larger investors lack specific IOS strategies and rely on others to assemble portfolios for them to acquire, typically by buying out existing mom-and-pop owners.
The market for IOS properties is a fragmented and regionalized submarket, and expertise in the space is hard to come by due to its niche nature. Thus, many brokers and buyers come from retail and self-storage, looking for the next big thing. Even if the industrial market cools, the increased supply of warehouses and shipping routes might make IOS more sought-after as a means of handling logistics traffic.
In summary, the IOS market represents a $200 billion opportunity in the commercial real estate sector. Investors see these properties as an appreciating asset that offers a defensive position in the marketplace. Due to a lack of new supply, IOS properties are becoming increasingly valuable, with rising rents and competition for assets leading to rapidly appreciating prices. As a niche and regionalized submarket, the expertise in the IOS space is hard to come by, making it a prime opportunity for investors seeking the next big thing.