The Freight Recession
As the freight industry experiences a downturn in demand, commonly referred to as the freight recession, its impact reverberates throughout the trucking industry. Surprisingly, however, the industrial outdoor storage (IOS) sector seems to be weathering the storm quite well.
Understanding Industrial Outdoor Storage
Industrial outdoor storage encompasses a wide range of functions and serves as a versatile solution for various industries. These storage facilities cater to diverse needs, including the maintenance and storage of rigs, trailers, containers, chassis, and the housing of bulk materials like roofing supplies, stone, and construction materials. Companies with extensive fleets, such as utility providers and field technician-based firms, often utilize these sites.
Typically occupying five to twenty percent of land, industrial outdoor storage facilities are commonly situated in infill industrial areas near urban centers, ensuring convenient storage and access through proximity to freeways, railways, and ports. With their strategic location, these assets play a vital role in the last-mile supply chain, providing essential resources and facilitating efficient transportation to consumers, ports, and other hubs. The pandemic has further emphasized the critical nature of these assets, highlighting their significance in maintaining the speed and effectiveness of the global supply chain.
The Freight Recession and Its Effects
Talk Business & Politics shares an interview with Shannon Newton, President of the Arkansas Trucking Association, that reveals how the freight recession has led to a drop in freight demand for consecutive quarters. This decline in demand is closely associated with assessing manufacturing activity, as transportation is an integral part of the supply chain. Interestingly, the overall economy has yet to follow suit, as consumers continue to spend on non-manufacturing goods such as leisure, travel, and dining. Unfortunately, this shift in consumer spending has burdened the trucking industry responsible for transporting these nonmanufactured goods.
The Trucking Industry’s Response
Despite the trucking industry experiencing a freight recession, there is a glimmer of hope within the industrial outdoor storage sector. FTR reports that trucking orders were down 11% year-over year and 18% month-over-month in March, with a preliminary order of 19,000 units. However, industrial outdoor storage appears to be relatively insulated from the worst effects, thanks to its varied and reliant tenant base. Companies involved in producing agricultural, pharmaceutical, dairy, fruits, vegetables, and lumber products, among others, all heavily rely on the trucking industry to facilitate their supply chain regardless of economic uncertainty. Further, the sector continues to draw a diverse range of tenants, including industries like construction materials, pipe supply, heavy equipment, and landscaping. This broad tenant mix ensures sustained demand across different markets.
The Resilience of Industrial Outdoor Storage
The industrial outdoor storage sector also stands out for its remarkable ability to navigate and adjust to dynamic market conditions, showcasing its inherent adaptability. Certain businesses within the sector, such as modular building companies, experience increased demand for storage capabilities during economic downturns since they are typically more cost-effective than conventional on-site construction methods. They rely on existing supplies, diminishing the demand for raw materials. This adaptability to changing market conditions is a defining feature of the industrial outdoor storage sector.
Optimistic Outlook and Favorable Supply
The favorable supply conditions in the IOS sector create an advantageous landscape for investors seeking attractive investment prospects. In an interview with GlobeSt.com, Doug Ressler, Manager of Business Intelligence at Yardi Matrix, emphasized favorable supply conditions within the IOS sector. New development remains constrained due to zoning regulations and developers’ focus on larger-scale industrial assets. These high-barrier-to-entry markets offer attractive investment opportunities, positioning owners to benefit from the limited supply and potential value appreciation.
Attractiveness for Investors
The industrial outdoor storage sector presents an enticing prospect for investors due to its low capital expenditure requirements for land monetization. With decentralized ownership and clear pricing options, interested investors can actively seek assets that meet the needs of industrial users without engaging in competitive bidding wars. This decentralized ownership structure also benefits industrial users, who are willing to pay premiums for conveniently located, secure, and clearly priced storage options. As a result, the IOS sub-segment outperforms its peers in terms of rent growth.
Looking Ahead
While the freight recession has caused a temporary downturn in port activity and a decrease in demand for Industrial Outdoor Storage (IOS) facilities at the beginning of 2023, it’s crucial to consider this in light of the remarkable growth observed in previous years. As the market stabilizes, the IOS sector is anticipated to sustain vigorous activity, gradually transitioning from the rapid growth seen in the past. With its resilient nature and favorable supply conditions, the industrial outdoor storage industry is poised to continue offering attractive investment opportunities and meeting the evolving needs of industrial users.
