Industrial Outdoor Storage: A Superior Asset Class
Why Premiere uses IOS as a foundational portfolio piece.
Diversity is a key component of a quality investment portfolio. Although performance varies across asset classes at different times, industrial outdoor storage (IOS) is one in particular that remains consistent.
Adaptability, higher returns, and favorable financing are all elements that add to the attractiveness of IOS. In this blog post, we will explore these benefits and how they should affect investment decisions.
A Growing Need
IOS offers industries, such as construction, logistics, delivery, etc., storage solutions for equipment. From trucks to trailers to implements, these types of storage facilities offer more flexible space and arrangements than traditional units.
The higher demand for IOS has been largely driven by an economy where e-commerce is booming. The evolution of traditional retail, thanks to global digitalization and on-demand availability of products, has increased consumer frequency of spending. Because of this, there’s a heightened need for equipment to support the transportation and logistics of an online commerce world.
The availability and flexibility of IOS is critical for the success of businesses, who’s need for stored equipment fluctuates often.
Adaptability
Although largely affected by the rise in e-commerce, there has always been a need for this type of facility for fleet storage, construction materials, energy equipment, etc. Industrial outdoor storage is able to serve both short-term and long-term needs of clients, offering a diversified tenant base. The diverse tenants tend to lead to high occupancy rates and stable cash flows.
Unlike traditional warehousing, this type of outdoor storage requires lower capital expenditure, partially due to the less strict zoning requirements. Oftentimes, owners of these properties do not face the same rigorous building code or environmental regulations that traditional storage facilities do. The less intensive property management, predictable revenue stream, and overall simpler lease agreements create a safer opportunity for scaling.
Higher Returns
A combination of favorable rate caps, supply-demand imbalances and long-term stability offer the potential for higher returns when investing in IOS:
- Favorable Cap Rates in IOS deals tend to be more attractive than in traditional real estate due to less capital investment while maintaining strong rental yields.
- The growing demand for outdoor storage often exceeds the limited supply of well-located and well-maintained properties, driving up rental prices and occupancy rates.
- Lower operational risks, including lower maintenance costs and longer tenant leases, contribute to long-term returns at a stable rate.
These combined factors position IOS as a high-yield and resilient asset class.
Favorable Financing
Investors in IOS properties are likely to secure higher advance rates relative to the property’s value, reducing the equity required and improving leverage opportunities.
Additionally, due to the industries IOS facilities attract, they are more resilient during economic downturns because the construction and transportation industries tend to remain stable.
As outlined above, adaptability, higher returns, and favorable financing are three attractive factors of industrial outdoor storage. When considering or maintaining a real estate investment portfolio, it could be advantageous to focus investment attention and funds in IOS, moving away from office and retail properties.
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