Industrial and logistics real estate has been on a roll as investors continue to target sectors which provide the infrastructure for the 21st century economy.

As mainstream logistics prices have risen on the back of investor interest and rising rents, new niches, such as cold storage, have found favour with investors seeking higher returns. In the US and now Europe, industrial outdoor storage has become the latest niche sector to attract attention.

Industrial outdoor storage (IOS) is a term employed to cover the yards used to store vehicles, trailers or construction equipment and materials. There may also be buildings on site, often used for maintenance.

These properties are typically located in industrial areas or regions with easy access to transportation routes, ports, or distribution hubs. In the US, such storage sites cover as much as 30 acres, while they may be smaller in European cities. Asian cities with large construction and logistics sectors also have similar sites.

Several IOS funds have been raised in the US and Europe in recent years. Investment manager Alterra, the biggest player in the sector, raised $524 million for a US fund last year and is seeking $750 million for a follow-on vehicle. Meanwhile, a new research report from Savills found that IOS rents in the UK rose 47% from 2022 to 2023.

The IOS market is characterised by low lot sizes (typically $10 million or less in the US), lease lengths of five to seven years and extremely fragmented ownership. However, investing in this property niche offers the potential for strong rental growth and, in some cases, conversion to a more lucrative use. For example, a former IOS site in West London has been brought to market with advanced plans to redevelop a part of the vacant IOS space into a data centre.

The continued growth of e-commerce as well as the ongoing demands of construction support the IOS sector, while its supply is constrained by zoning and, in some cases, opposition to its unattractive appearance.

Simon Smith, Head of Research and Consultancy at Savills Asia Pacific, says: “This is possibly the least glamorous of all real estate sectors, but it has attracted the interest of blue-chip investors in the US and UK.

“There is also potential for building portfolios here in Asia Pacific, which will take time due to the fragmented nature of current ownership. However, the growth in specialist funds elsewhere in the world demonstrates that this is a sector with potential.”

Further reading:
Asia Pacific Investment Quarterly Q3/2023

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