Tom Barbera Headlines Panel of Experts in Discussion on the Institutionalization and Future of Industrial Outdoor Storage (IOS)
SCHAUMBURG (October 17, 2023)—Later this week, a group of professionals focused on the Industrial Outdoor Storage (IOS) niche within the industrial sector will discuss the $200 billion niche’s explosive growth and future potential as part of NAIOP’s CRE Converge 2023 Conference at the Hyatt Regency Seattle.
Tom Barbera, CEO of Industrial Outdoor Ventures and one of the early investors in the sector, highlighted one of the greatest changes he has seen in the sector as “the broader recognition of the property type and, along with that, the increasing institutional interest in the category.”
Additional speakers on the IOS Panel, starting at 2:45 pm on Thursday, October 19, include Michael Caprile, Vice Chairman, CBRE (moderator); Tim McCahill, Managing Principal Transport Properties; Steve Azar, Co-founder and Principal, Ambient Capital; and Lucas Borges, Senior Director, JLL.
Tim McCahill, Managing Principal, Transport Properties, agrees with Barbera, noting that the biggest change over time has been the increasing awareness of the space nationally. “When we first started buying, the mark-to-market opportunities were all over the place,” McCahill said. “With brokers and owners becoming more aware of the values, it is much more challenging to find those opportunities.”
Steve Azar, Co-founder and Principal, Ambient Capital, says the attractiveness of the sector includes its core fundamentals and historical sector performance along with the fragmented ownership landscape. It all leads to the opportunity for outperformance relative to the broader industrial market. “To us at Ambient, IOS is the best relative value proposition in commercial real estate,” Azar said.
Barbera attributes the increasing popularity of the IOS sector to two major reasons. “First, industrial assets on the whole have become much more attractive to institutions over the last 10 years,” he said. “Second, as an extension of the industrial sector, IOS has arguably the best fundamentals: high barriers to entry, no new supply, limited functional obsolescence, strong tenant credit, and acyclical demand.”
Michael Caprile, Vice Chairman, CBRE, added to the list of benefits and said that over the past 5 years, investors have seen IOS rental growth outpacing the warehouse sector in each market across the country.
Another aspect of the sector that makes it increasingly popular, outside of potentially higher yields, is the low amount of capex to re-lease the space is very attractive. With office, industrial, or retail, investors spend significant capital to repurpose the space for their next tenant.
“In the IOS space, it is the opposite,” McCahill said. “When a repair facility works for a trucking company, it very likely will work for an equipment rental company, school bus company, contractor, etc.”
While the panelists had an expansive list of what is making the IOS niche so attractive, they all agreed that the greatest challenges are zoning and NIMBY issues which, Azar said, create substantial and permanent barriers to entry for new supply which will keep inventory relative constrained for the foreseeable future.
“The restrictive zoning which drives scarcity in the market will also inhibit supply growth, yet we at IOV remain very bullish on the IOS sector,” Barbera said.
Caprile agreed, but also said restrictive zoning can be considered an opportunity for investors. “Limited supply in the IOS sector, and no substantial new IOS supply for the foreseeable future will increase rental growth,” Caprile said.
