Alterra IOS CEO on the outperforming real estate sector hiding in plain sight

The commercial real estate sector is experiencing a significant shift, with industrial outdoor storage (IOS) emerging as a highly sought-after asset class. This often-overlooked sector is now witnessing substantial demand and rent growth, driven by the rapid expansion of AI and quantum infrastructure. IOS refers to paved or gravel land used for storing construction equipment, vehicles, containers, and other supplies, serving as a crucial support system for the movement of goods across the country.

These sites are typically located near highways, ports, and other key infrastructure, making them essential staging grounds for data center construction. Developers are utilizing IOS to store millions of dollars’ worth of equipment, including generators and tractors. According to Alterra IOS, a prominent player in the space, there is over $1 trillion worth of IOS real estate in the US, with around $300 billion of it being owned by small local owners and not institutional investors.

Growing Investment in IOS

The IOS sector was previously dominated by small, local owners, but it is now attracting significant investment from major players. In August, Zenith IOS formed a $700 million joint venture with institutional investors advised by J.P. Morgan Asset Management, which will have a gross asset value of over $1.5 billion. This makes it one of the largest IOS portfolios in the US. Additionally, Blackstone has provided loan commitments to Alterra IOS and Jadian Capital, totaling $420 million.

These investments are driven by the attractive fundamentals of the IOS sector, which has delivered twice the rent growth and has roughly half the vacancy rate of the bulk warehouse sector. Since 2020, IOS rents have increased by 123%, with cities like Phoenix, Memphis, and Atlanta leading the way. In some markets, IOS is even delivering rents similar to bulk warehouses when normalized per acre.

Market Trends and Outlook

The IOS sector is larger than other notable categories of real estate, such as self-storage, manufactured housing, marinas, and RV parks. Alterra IOS has announced the close of a $150 million loan facility from funds managed by Blue Owl Capital, which will support acquisitions for its $925 million closed-end fund. This deal marks Blue Owl’s first financing in the IOS space and reflects the growing interest in this sector.

Despite the strong demand and growth prospects, the IOS sector is not without risks. Zoning constraints, high interest rates, tariffs, and a weakening economy are all potential concerns. Furthermore, the data center demand that is driving much of the growth in IOS may be getting overheated, according to some experts. Nevertheless, the fundamentals of the sector remain strong, and well-located sites are likely to continue to be in high demand.

Key Players and Market Size

The IOS sector spans an estimated 1.4 million acres in the US, with users such as FedEx, J.B. Hunt, and Maersk relying on these sites for transportation and logistics. Equipment and bulk materials storage companies like TruGreen, ABC Supply, and United Rentals also utilize IOS. As the sector continues to evolve, it is likely that we will see more investment and consolidation, driven by the growing demand for data center construction and the need for efficient logistics and supply chain management.