Industrial Outdoor Storage 'Surprisingly Resilient.' Institutions Want In

A freight recession, dizzying tariff and trade policies, and a plunge in commercial construction could have shaken the fragmented industrial outdoor storage sector. 

But the niche asset class has shown countercyclical strength, intensifying demand from tenants and investors for IOS properties, heightening competition and proving investment theses.

“We've been pleasantly surprised at the resilience given the number of body blows that IOS should have taken,” said Zach Dobin, portfolio manager for Triten Real Estate Partners’ industrial platform. “It's stood up.”

IOS rents have grown 123% since 2020, according to a midyear report from Newmark. The sector benefits from minimal purpose-built development and a diverse, evolving tenant base, including cargo, equipment rental, trailer parking, building material storage and more. 

Vacancy averages just 4.9% across 15 top markets, making the IOS vacancy rate less than half the 10.5% seen in bulk warehouses over the same period.

While other industrial buildings saw a huge development boom in the early years of the pandemic, the IOS sector is defined by supply constraints. That made it a good bet when Alterra IOS entered the market around 2018 — and a good bet still today, Alterra Senior Vice President of Acquisitions Mark Gannon said.

Over the past three years, more investors have entered the space for the same reasons as Alterra.

“Everyone's fundamental view of the space is that there is a diminishing supply of IOS real estate and heightened demand across the country,” Gannon said. “What that leads to is rent growth and compelling cash flow characteristics for your investors.” 

What was a severely fragmented sector about six years ago is now seeing aggregated portfolios hit the market with huge buyer demand for portfolios in the $50M to $100M range, said Charlie Strauss, managing director of capital markets in JLL’s Houston office.

Morgan Stanley Real Estate acquired a Southern California IOS facility for $92M last month. J.P. Morgan Real Estate Income Trust acquired a 16-property IOS portfolio in June for $95M. 

Houston-based Triten Real Estate Partners sold a 117-acre portfolio to Miramar Capital Advisors in May, exiting the investment it bought from a Houston family in 2022 as part of its cross-country IOS investment strategy, which began in 2018. 

“It’s definitely a pretty hot asset class,” Strauss said. “Any sort of portfolio that we've had out on the IOS side has gotten really good traction from the buyer pool. There's a lot of new groups that have formed that are specifically chasing IOS.” 

When Catalyst Investment Partners sold and recapitalized two IOS portfolios totaling 18 properties with a large state pension fund for $163.5M in May, it saw strong demand from institutional investors, including pension funds, sovereign wealth funds, public and private REITs, and insurance companies. 

Factors limiting new supply of IOS include lack of land availability, stringent development standards, and highest and best use, or building a more traditional industrial asset to elicit better returns through higher rental rates.

But the primary limiting factor is municipal zoning, since most city officials would prefer a more visually appealing development to a storage yard.

“It's just very hard to add new product in the places that users want to be,” Dobin said. 

Yet tenant demand has remained strong through market fluctuations. President Donald Trump’s tariff policies early this year brought hesitation for investors and tenants in all asset classes, but when one IOS tenant declines, another steps up, Dobin said.

Freight had already been in a recession for two years before tariffs became an issue, and commercial construction in the office, multifamily and industrial spaces has plunged. But government work fixing bridges, roads and infrastructure has really picked up, as has demand for storage from manufacturers. 

The lowest vacancy rate in a market tracked by Newmark was 2.5% in Orlando, Florida. Other port markets, including Savannah, Georgia, South Florida and Houston, weren’t far behind, with a 3.4% vacancy rate in Houston. 

IOS demand in Houston is diverse and not directly correlated with Port Houston traffic, but it has been boosted by onshoring moves from major manufacturers. Manufacturing usually accounts for 10% of industrial tenants in the Houston market, but now it accounts for 30%, Strauss said. 

Houston-area IOS properties also benefit from necessary utility upgrades to enable rooftop growth and manufacturing or data center-related development, Dobin said, adding IOS users often include contractors and construction equipment rental companies.  

“You had this really other segment of IOS demand related to construction and infrastructure, and those demand drivers kind of really stepped in to backfill the missing demand from freight,” he said. “We've actually been surprised at the resilience.” 

The strong demand has proven Triten’s thesis, which it developed when it acquired its first IOS asset in 2018, before IOS was even a recognized initialism.

“There were hints of qualities that this could be an aggregation play where institutional capital would come in, and then the only question is whether that would play out,” Dobin said. 

Many institutional investors have now paired up with operators or formed new ventures to chase IOS and aggregate portfolios after starting to examine the asset class two to three years ago, Strauss said. 

The capital now chasing IOS proves that it was a positive exercise for these institutions, he said. 

Triten partnered with TPG Angelo Gordon in December 2020 with the goal of turning a fragmented asset class into an institutional-quality portfolio, then to ultimately recapitalize and hold with a new partner or sell, Dobin said.

“This was an aggregation play to benefit from future capital that would come into the space,” he said.

In 2018, Alterra saw that IOS was an underserved asset class from an institutional investment manager standpoint, Gannon said.

“A lot of national, highly reputable tenants in this space didn't have a go-to landlord that was focused on their type of real estate,” he said. 

Alterra IOS has acquired properties through a joint venture with J.P. Morgan Asset Management. The JV sold a 51-property portfolio to Peakstone Realty Trust for $490M in November 2024. Peakstone last month announced it would sell its remaining office holdings to cement its pivot to industrial, primarily outdoor storage. 

While the IOS sector is still in its early stages of transitioning to institutional ownership, according to the Newmark report, the number of IOS properties reported in the National Council of Real Estate Investment Fiduciaries’ Expanded National Property Index has more than doubled in the past five years. 

More investor interest makes buying more competitive, but it also brings more liquidity to the market, Gannon said. It will create greater transparency around IOS data, which has historically been opaque due to the lack of focus on the asset class.  

“There's more folks that are buying and transacting on this type of real estate, which is a net positive for the whole industry,” Gannon said.