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As the e-commerce boom set off by the pandemic continues, logistics issues, supply chain disruptions and a lack of available warehouse space are keeping businesses from meeting demand.
That's why many companies have begun to look to industrial outdoor storage, or IOS, to facilitate their distribution and supply chain networks. Businesses want to be near major ports and key hubs, and finding well-located IOS sites that save on distribution and transportation time as well as labor ultimately results in substantial cost savings.
IOS has grown from a niche market to a $200B asset class, with more tenants needing to use these spaces to store vehicles, equipment and other materials in a secure outdoor facility. With same-day delivery expected to grow up to 25% by the end of this year and rising fuel costs causing headaches for businesses and consumers, well-located, infill IOS spaces may be vital in helping companies reach those last-mile customers.
However, finding available IOS sites is extremely challenging. There is only so much IOS space available, making competition to lease the few available IOS properties fierce, according to Catalyst Investment Partners.
“Companies are having a hard time finding IOS sites for their businesses since the supply barriers in dense urban markets are so strong and the few properly zoned IOS sites are almost entirely occupied,” said Dan Haroun, co-founder of Catalyst.
Catalyst IOS, a vertically integrated real estate investment firm that specializes in IOS properties, recently finished deploying its first fund across a $130M IOS portfolio in 21 assets and is actively rolling out Catalyst IOS Fund II, which held a first closing in October 2022, and is actively raising new capital to acquire $400M of IOS properties.
Bisnow spoke with Haroun about some of the challenges Catalyst encounters with IOS properties, why these facilities are important to the supply chain and how Catalyst is capitalizing on this trend.
Bisnow: What are some of the challenges with finding new IOS facilities?
Haroun: The most challenging barrier to new IOS sites becoming available is zoning. Local municipalities are not creating any more industrial-zoned land, but it’s needed by companies to service distribution networks and growing populations.
Once a well-located, properly zoned site is identified, it often leases very quickly due to the wide range of users who need it. This results in a very favorable supply-demand dynamic for landlords, which allows us to generate outsized yields, returns and, most importantly, cash flow growth, which is critical in today’s inflationary environment.
Bisnow: Why is it important that big brands like Sunbelt, FedEx and other companies utilize IOS sites?
Haroun: It is important for companies to locate where their operations can be run most efficiently, and that means finding any available sites close to dense populations and demand drivers. If a company is forced to locate its IOS operation 20 minutes further from its end destination and consumer base, that means an additional 40 minutes of round-trip travel time, labor and fuel costs, and wear and tear on its vehicles.
The current inflationary environment has made infill IOS sites even more valuable. Leasing well-located sites can help cut compounding labor, fuel and vehicle maintenance expenses on each trip, ultimately helping tenants realize significant cost savings, which they may pass on to end consumers.
Bisnow: What are some ways that Catalyst is helping to fix these problems?
Haroun: Our overarching goal, like others in this space, is to identify and improve IOS sites in infill locations that represent a significant value-add for our tenants and provide an attractive risk-adjusted return for our investors. By enhancing access to IOS facilities, landlords can help tenants cut costs, improve efficiencies and better accomplish their goals.
Bisnow: Is there an IOS project Catalyst is working on right now?
Haroun: We are actively working on over 40 IOS projects across the country within our existing portfolio and our acquisition pipeline. One example of a recent acquisition is 1435 River Ave. in Camden, New Jersey, a 12-acre site just a five-minute drive from Center City Philadelphia. This property is about to be listed on the market for lease and we expect that it will be incredibly desirable due to its scale and last-mile location proximity to dense, urban Philadelphia.
Bisnow: What do you see for the future of IOS?
Haroun: Ultimately, we expect that IOS sites will be used for many modern-age technologies, such as electric vehicle charging stations for truck fleets, cars or other new technologies not yet widespread. IOS as an asset class will also, over time, transition to more institutional ownership in a similar way to self-storage and manufactured housing as capital continues to flow into the sector in search of high returns and yields that are achievable for those with the appropriate resources and market knowledge.
This article was produced in collaboration between Studio B and Catalyst Investment Partners. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
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