What Is Industrial Outdoor Storage (IOS)?

Industrial outdoor storage, also referred to as IOS generally refers to industrial land used primarily for storage of vehicles, equipment, materials, containers, etc. Property sizes can range from about 3 acres to 50+ acres. IOS investors look mainly for properties where at least 70% to 80% of the property is flat land without buildings. The surfacing of the storage area can be anywhere between gravel and asphalt pavement. Amenities vary from nothing to security fencing, video surveillance, onsite manned security, etc.

Below are 6 great reasons to invest in industrial outdoor storage.

Low Competition

The industrial outdoor storage (IOS) space is a niche market with low competition.  Most real estate investors are chasing single family residential or multi-family residential investing.  A few have ventured into the commercial and even the industrial spaces, but industrial outdoor storage investing isn’t on most investor’s radar. 

The fact is that anything classified as “industrial” may sound intimidating, as this is an unfamiliar space for the average investor.  But like in any other space, industrial outdoor storage investors can start small.

Limited Industrial Land Supply

When cities and counties plan for future development they divide urban areas by districts like residential, commercial, and employment.  Most of the land is assigned to the residential districts, a smaller land area is assigned to commercial districts, and an even smaller land area is usually assigned to employment districts. 

Industrial land is usually within the employment district, which supports employment opportunities not directly related to residential, institutional, or commercial pursuits.  The map below shows a typical urban area. The residential areas are shown in yellow tones, the commercial areas are shown in red tones, and the industrial areas are shown in blue tones. 

As you can see, compared to other land types, industrial land is generally in limited supply. All of this contributes to a low supply of industrial outdoor storage.

Another troubling trend is that much industrial land is being redeveloped into commercial or multifamily residential. In fact, some cities are experiencing what some are calling the Industrial Land Crisis. Here’s a very informative video on this subject.

Increasing Demand for Industrial Outdoor Storage

The wider adoption of e-commerce over the last several years has resulted in increased demand for warehouses, last-mile delivery distribution hubs, and other industrial type of facilities.  In addition, the COVID 19 pandemic further accelerated this demand. 

The impact of higher warehouse demand has one-two punch effect on industrial outdoor storage demand. Firstly, new warehouse developments absorb in short supply industrial land. Secondly, new warehouse developments often lead to additional industrial outdoor storage demand.

As with all real estate, the location of the property is of utmost importance. Industrial development requires large plots of land, which are often difficult to find, especially near urban areas.  Developers prefer industrial land properties, with easy freeway access, that are flat and uninhibited by wetlands and other environmental challenges.

Industrial land, that has the right characteristics, is in high demand and it is likely to continue to be in high demand for many years to come.

Passive Income Potential

Renting out industrial outdoor storage is one of the most passive forms of investing I can imagine.  A gravel parking lot doesn’t require much of anything at all.  Many investors in this space do little for advertising and very little for maintenance.  Sitting back and collecting rent from a good paying customer is hard to beat.  Meanwhile, your asset is appreciating and waiting for a deep pocket buyer.

Covered Land Play

A Covered Land Play is when you buy land or property based on its existing use (i.e truck parking), but you are counting on that property becoming more desirable as something else, like a warehouse. Meanwhile you are generating enough cash to cover the cost of owning the land (debt, taxes, insurance, etc).

In fact, demand for truck parking, outdoor storage, and other similar activities is sufficiently strong that utilizing industrial land in this manner can be a great covered land play.  Parking and/or outdoor storage generates good cash flow, requires very little in terms of development and is a very passive form of investment. 

In short, this is a great way to hold on to the land indefinitely until a deep pocket investor makes you an offer you can’t refuse, or until you decide to develop to a higher and better use.

Long Term Tenants

Industrial outdoor storage tenants are usually long-term tenants.  The same can be true for industrial land tenants, especially because finding another suitable plot of industrial land to park vehicles and/or store materials isn’t always readily available.  In addition, industrial land tenants are usually more financially secure. 

Example of Land Holding in Washington

The land hold strategy discussed here can also apply to commercial and other types of land.  As mentioned earlier, the implication is that commercial land is not as scarce as industrial land. 

Searching on Loopnet, I came across a 11-acre property in Napavine, Washinton.  The property is located along Washington’s most important highway, I-5.  This plot of land is also adjacent to a popular Truck Stop and next to a river. 

This location makes the property ideal for a hotel, a mall, distribution center, or even an RV park.  Currently however, the property is being used for truck storage.  The owner is leasing out the space at a rate of $1.2/SF/YR, utilizing a Triple Net Lease (NNN).  That amounts to a revenue of nearly $575,000 per year, assuming the property is fully leased. 

I’ve driven by this property several times over the years, and I’ve seen occupancy getting better and better.  If it isn’t 100% leased, it is very close to it.  This property is for sale at a price of $5,749,920.  It is easy to see how this investment can be an 8% to 9% cap investment, assuming a high level of occupancy can be maintained.  But the even more exciting news is that the property will continue to appreciate, as demand grows and as a higher and better use for the property materializes.

And let’s not forget, that this form of investment is very passive, as a Triple Net Lease (NNN) makes the tenant responsible for nearly everything imaginable.

Conclusion: Investing in Industrial Outdoor Storage Can Be Very Profitable

Low competition in this space, combined with limited supply and high demand, make industrial land investing a very attractive space.  Moreover, utilizing industrial land to generate passive income prior to development is an excellent strategy to hold land while you wait for a higher and better use. 

The key to finding success with industrial land investing is finding the right plot of land.  This requires knowing what to look for in terms of location, zoning, environmental restrictions, etc.  And because of the limited supply of land, this strategy also requires exploring opportunities across several counties and states. For more about IOS see Industrial Outdoor Storage (IOS): A Growing Investment Opportunity

For other similar investments see 10 Great Reasons Why I Like Boat & RV Storage Investing