June 15, 2022

Industrial Outdoor Storage Continues Upward Trajectory

Criterion Group acquired eight industrial outdoor storage (IOS) properties totaling 151 acres for an aggregate purchase price of $45.3 million, it announced this week.

Criterion Group’s IOS portfolio now extends to 13 states and for the first time includes investments in Virginia and North Carolina.

The group recently formed a joint venture with Columbia Pacific Advisors to expand its IOS portfolio by deploying a $2 billion in capital by the end of 2023.

Criterion now brings to market more than 677 acres of land that will be utilized as industrial outdoor storage, including equipment yards, fleet storage, and logistics support services. Its $550 million IOS portfolio currently includes over 50 properties in 13 states.

Yield Compression in an Absolute Sense

Marc Duval, managing director, JLL Capital Markets, tells GlobeSt.com that there has been significant compression of yields in an absolute sense and as a spread to industrial properties in total.

“While the spread to industrial properties has narrowed from approximately 300 basis points two years ago to as low as 75 basis points today, we expect the spread to narrow even further with diminishing supply and evolving demand of uses,” Duval said.

“The space has certainly institutionalized over the past three years with an increase in lease duration as well as improved credit of tenancy.

“We expect industrial outdoor storage properties to perform as well or better than industrial properties as a whole. It is the only diminishing asset class under the industrial umbrella but is still a vital component of the global supply chain.

“Ownership of the existing outdoor storage inventory is very fragmented allowing significant near-term and long-term aggregation opportunities.”

Brandon Duff, Northmarq Senior Vice President and Managing Director, tells GlobeSt.com that investor demand for IOS properties continues to increase significantly as capital flows into this asset class.

Criterion’s acquisition of these properties is further evidence of that,” Duff said. “We have seen dozens of sponsors enter the IOS & ISF space during the past 12 to 24 months as groups execute a variety of strategies along the risk curve and assemble institutional quality IOS & ISF portfolios.”

Dunleer Expanding its IOS in SoCal

Another example is Dunleer, a Los Angeles-based private real estate investment and development firm, which recently acquired two industrial outdoor storage properties totaling approximately $13 million. The properties are located at 4404 W 1st Street in Santa Ana (Orange County) and 10027 Artesia Boulevard in Bellflower (Los Angeles County).

Dunleer plans on aggressively adding to its portfolio of IOS assets over the next 18 months in key Western U.S. infill locations.

“Dunleer is bullish on IOS assets for a wide variety of tenants,” said BJ Turner, Founder of Dunleer, tells GlobeSt.com. “It is an irreplaceable part of a company’s business model. They are also generally easy to manage and lease, and are a solid source of revenue with higher average cap rates compared to distribution centers. We are seeing more and more interest from a range of investors and users as there is no realistic path to replenishing the supply of this asset class as competing sites often get developed or rezoned.”

“Both of these assets are located in extremely tight infill markets and we expect to attract a strong amount of demand from a wide variety of users including transportation, e-commerce, construction, construction materials and utility industries.”