Industrial Outdoor Storage Market Update | Q1 2024
Industrial Outdoor Storage (IOS), a historically overlooked asset class, is now front and center in the rapidly changing industrial landscape. A more diverse range of buyers has been gravitating toward the IOS market based on the expansive use of these sites. Industrial outdoor storage spaces typically range from two to 10 acres, with a floor area ratio (FAR) of 0% to 20%. Typical use cases for IOS include truck terminals and parking, container storage, equipment rental, and building material sales. Current utilization trends indicate a strong demand for spaces that offer high visibility and flexibility to meet regulatory and compliance requirements for occupants. This article explores current IOS market conditions, a look inside the IOS market in Dallas-Fort Worth (DFW), and what to expect in the quarters ahead.
Supply and Site Selection
Supply for IOS sites varies by market and continues to be impacted by land costs, construction costs, and zoning regulations. Certain submarkets, such as Southeast Dallas, have seen increased supply over the last few years due to proximity to rail and a rise in vacancy over the past year. In contrast, other markets like Austin have seen a lack of supply due to near-record high land costs that have not stabilized.
Industrial outdoor storage site selection is influenced by proximity to major transport routes and urban centers. An example would be the strong demand for sites near port cities such as Laredo due to the onshoring to Mexico. As investor and user focus increases on this asset class, an improved standard of functionality for IOS sites based on user needs, municipal regulations, and lending requirements is also expected.
Investor Insights
Investor demand for IOS has remained strong, supported by long-term market dynamics, minimal cap-ex burdens, ease of construction, and stringent zoning requirements. These factors contribute to a high barrier to entry and supply constraints within in-fill markets.
Across the Sunbelt region, the average rent per usable acre stands at $6,511, and the typical usable acreage on a standard IOS site measures 7.4 acres. States with a substantial mix of logistics hubs—Florida, Texas, Maryland, New Jersey, and Virginia—are seeing continued demand for IOS assets. Inflation is playing a significant role in lease negotiations: The average annual rental escalator is three percent and sometimes as high as five percent. Nearly every tracked site is opting for a triple net lease structure, indicating that investors maintain a steadfast stance in lease negotiations.
Market Overview for DFW
In Dallas, the IOS market has been witnessing robust growth in response to the city’s booming logistics and manufacturing sectors. As one of the major transportation hubs in the United States, Dallas attracts businesses seeking strategic locations for their warehousing and distribution needs. Outdoor storage facilities in Dallas are playing a crucial role in accommodating clients’ needs for their operations. Vacancies have begun to creep upward in certain submarkets, such as South Dallas, due to the new supply being delivered in Q1. Across the board, average rental rates are hovering around $5,500 per acre per month.
Fort Worth’s IOS market has been experiencing prominent growth to keep up with the city’s rapid development and outward expansion throughout the larger DFW MSA. Vacancies have increased over the past six months in the logistics sector due to the significant downturn of the trucking and freight industry in 2023. However, net absorption has remained relatively stable alongside high demand among IOS space users and restricted supply from zoning regulations. Rent growth for IOS is starting to slow alongside an increase in construction in Q1. However, infill locations have not been affected as much due to high fuel costs and developer challenges with municipal zoning laws. So far in 2024, market comps in Fort Worth have shown that most IOS properties are selling between $400,000 and $700,000 per acre, while rental rates are averaging around $5,000 per acre per month.
Looking Ahead
Demand for IOS is expected to continue among operating companies and investors as long as new product is needed in various markets and capital is raised by institutional groups. The standards for IOS are also anticipated to keep advancing over the next several quarters.
