Industrial outdoor storage activity has soared in recent years. The product type has a limited supply, high-quality credit tenants and future development opportunities to a higher and better use. Plus, parking and truck storage has become an important node in an efficient supply chain, which will help ensure healthy demand.
Altogether, investors have found a lot to like about the asset class. In recent years, investment appetite has grown, and now, institutional investors are moving in, launching investment funds and strategies to increase exposure to the industrial outdoor storage market, according to Andrew Wiesemann, an associate VP at Matthews Real Estate Investment Services.
Just The Beginning of an Institutional Presence
Institutional investors are heating up an already competitive outdoor storage market. In the last three months, institutional funds—including TPG Angelo Gordon, JP Morgan and municipal pension funds—have raised $3 billion in capital for the industrial outdoor storage market and partnered with leading national operators like Altera, Zenith and Triton.
"I believe this is really just the start of the institutional presence in this asset class," says Wiesemann. "Even as demand has faded for other popular asset classes, like multifamily, office and retail, industrial outdoor storage demand has continued to climb."
There isn't a formal quality classification of industrial outdoor storage, but institutional players are looking for specific characteristics. In particular, this cohort of investors wants stabilized properties with a credit tenant in place.
"Institutional buyers are staying away from just straight yards. There's a huge emphasis on buying properties that have an industrial service facility on site. Typically, they look at a site with a building with no more than 25% coverage at most," says Wiesemann. "That is kind of the sweet spot."
He adds that institutional buyers also want assets with grade-level doors and 16- to 20-foot clear heights. Institutions are also considering future capex investment, preferring facilities with fully paved yards, for example, that will save a significant future investment.
Investment Follows Population Growth
Location and zoning play a huge factor in evaluating these assets, explains Wiesemann. Because industrial outdoor storage demand is linked to the supply chain, the most attractive facilities are located in major metropolitan areas or population centers. In the last few years, demand for outdoor storage has followed population growth, with markets like Texas and Florida becoming particularly popular.
But, Wiesemann cautions that it is also about the supply-demand dynamics. "The best assets are irreplaceable," he explains. "If you're looking at an industrial outdoor storage site in Cleburne, Texas, where there's a lot of land that's available to be developed, that's not going to be as valuable as somewhere in the middle of Dallas, Texas, with no ability to expand around it." That will ensure current demand and create development opportunities down the road.
Wiesemann further advises that, when evaluating an asset, to familiarize yourself with the zoning on that particular site, as not every industrial site is cleared for outdoor storage. Municipalities may also restrict outdoor storage if their future plans include rezoning the area to other uses, such as residential.
Institutional investors are just gaining momentum in this space, but Wiesemann predicts that in five to 10 years, industrial outdoor storage will be an institutional-grade asset class.
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Kelsi Maree Borland
