Industrial outdoor storage (IOS), a niche yet crucial segment of commercial real estate, is experiencing a severe shortage as demand skyrockets. This shortage is primarily driven by the rapid expansion of data centers, each requiring vast amounts of materials and equipment that must be stored before installation. As the market tightens, stakeholders in construction and related industries face escalating costs and limited options for storage solutions.
What Happened
The demand for IOS has surged due to the ongoing data center buildout, which necessitates substantial staging areas for materials. According to DAT Freight and Analytics, every gigawatt of data center capacity requires approximately 100,000 truckloads of steel, concrete, generators, and equipment, underscoring the scale of this demand. Currently, the IOS market spans about 1.4 million acres nationwide, but the investable portion is significantly smaller, with a large share owned by municipalities and government entities. The vacancy rate for IOS is around 4 percent, markedly lower than the 7 percent observed in traditional industrial spaces. Furthermore, national rent growth for IOS has soared by 32 percent since 2021, with top port-adjacent markets witnessing rent increases of over 110 percent since 2020.
Investment in IOS has been robust, with significant deals highlighting the sector's potential. Brookfield's acquisition of Peakstone Realty Trust for $1.2 billion and J.P. Morgan Asset Management's partnership with Zenith IOS on roughly 100 properties are notable examples. Despite this influx of capital, supply-side challenges persist. New IOS development faces regulatory hurdles, such as zoning restrictions and community opposition, which limit the introduction of new storage spaces.
What This Means for Your Business
For businesses operating in the architecture, engineering, construction, and manufacturing (AECM) sectors, the IOS shortage presents both challenges and opportunities. On the procurement front, the scarcity of available storage space could lead to increased costs and logistical complexities in managing supply chains. Companies may need to secure IOS contracts early to avoid price hikes and ensure timely project execution.
Compliance officers and procurement directors should be aware of the potential need to navigate local zoning laws and community pushback when considering new IOS developments. Additionally, the rising rental costs might impact project budgets, necessitating strategic planning to optimize storage costs.
Investors and government contractors could explore opportunities to invest in existing IOS properties or consider joint ventures to develop new storage solutions. With data center developments consuming existing IOS spaces, there is an imperative to innovate and identify alternative solutions for staging and storage.
What US Operators Should Watch
US operators should monitor federal and local regulations that may impact the availability and cost of IOS. Staying informed about upcoming data center projects and their associated storage demands will be crucial for strategic planning. Moreover, keeping an eye on investment trends and major acquisitions in the IOS market can provide insights into potential opportunities or risks.
As the demand for data centers continues to grow, the pressure on IOS will likely intensify. Decision-makers should prioritize securing storage solutions and consider forming partnerships to mitigate the impact of rising costs and limited availability.
Source: https://propmodo.com/industrial-outdoor-storage-spans-1-4-million-acres-and-still-is-not-enough/
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