Industrial open storage (IOS) makes use of large, open spaces designated for industrial use to stow weather-resistant equipment, materials, and vehicles. The unique profile of IOS assets have enabled it to play a crucial role in the further expansion of the industrial and logistics (I&L) sector. And in the last two years, IOS rents have surged by 36% (opens a new window) – according to research from Knight Frank.
In this article, we discuss and consider the strengths of IOS assets, the investment market appetite for this solution, and how to mitigate its respective risk profile.
IOS: core strengths and advantages
IOS is fundamental for the logistics supply-chain sector and national import/export infrastructure, and offers developers specialised storage options, often with good transportation links (close to motorways, ports, and distribution hubs); particularly on sites where warehouse development has already been explored.
Traditionally, companies operating within storage, transport, manufacturing, construction, or distribution have opted for IOS assets. IOS sites focus on land density rather than building square footage so has the ability to provide space to hold materials in bulk, store large machinery and facilitate self-storage in shipping containers. IOS is fundamental for the logistics supply-chain and national import/export infrastructure.
External storage can be advantageous for tenants looking to insulate themselves and reduce exposure to international trade disruptions and has become attractive for institutional and private investors as the costs associated with CAPEX and maintaining properties in a good condition is minimised. A key driver for the institutionalisation of the sector is the occupier credit when compared like for like against Market Linked Investments nationwide.
IOS assets offer businesses solutions associated with vehicle fleets and an opportunity for value creation via institutional management. Employment land is scarce and development is reducing overall IOS supply creating a favourable demand/rent growth dynamic in strong locations.
How is the IOS market evolving?
Within the UK, IOS developments have rapidly matured in recent years, and are estimated to be worth over £16 billion (opens a new window) by Carter Jonas. Increasingly, occupiers are using IOS sites as a long-term component of their operational strategy or distribution network, rather than just for temporary storage needs. The ability of IOS to be utilised as an effective solution for EV charging requirements and last mile distribution has also increased demand for prime IOS sites.
This is reflected in the investment market, with Modal and Centerbridge recently securing financing (opens a new window) for their expanding £300 million IOS platform. Beyond the UK, the US is several years ahead in terms of its institutionalisation story. Several platforms exist with in excess of $1billion AUM and large-scale recapitalisations and exits are beginning to take place. For example, industry leaders Alterra IOS and J.P. Morgan disposed of (opens a new window) an IOS portfolio valued at US$490 million, in late 2024.
Market participants must remain aware that this I&L subsector is continuing to develop and is in its maturation stage in the UK. Currently, key players include Modal, Mileway, Roebuck, Nuveen, Marchmont, and Almcor, and nascent institutionalisation within the IOS space has created an opaque market in terms of data and valuations.
The supply of IOS space will always be challenging due to an unfavourable perception for IOS from local municipalities due to minimal job creation and the potential for damage to local infrastructure from heavy vehicles and equipment. However, with e-commerce demand growing and the increasing requirement for efficient and sustainable supply chain delivery, there is great potential for investors in IOS. However, even with this demand, there are challenges ahead.
Client View “We continue to see resilient demand supported by powerful structural tailwinds in the UK and European IOS market. Growth in logistics, last-mile delivery, and the need to safeguard critical infrastructure are driving sustained occupier requirements at a time when permitted land supply remains constrained. “We have strong conviction that IOS will outperform through cycles, delivering durable cash flows and long-term value creation. Our institutional approach enables us to aggregate efficiently, professionalise a historically overlooked asset class, leverage proprietary data and work closely with occupiers to deliver the operationally critical solutions they require.” Morgan Baker, Co-Founding Partner, Modal |
Key IOS risk and development considerations
Site location and ease of access – Selecting an appropriate location is crucial for IOS properties. Assets that are strategically placed near manufacturing centres or transportation hubs with good access to major roads and logistical lines are likely to garner higher demand. Consequently, IOS assets in optimum locations infrequently come to market and, if they do, competition from institutional buyers is likely to drive the price up.
Planning challenges – Particularly in urban areas near major conurbations, it can prove difficult to gain planning permission to build IOS assets. Local residents could raise objections on the basis of increased traffic, noise pollution, decreased property values, strain on local infrastructure, and potential visual impacts. Furthermore, local authorities may view IOS developments unfavourably as they generate a lower tax revenue in comparison to other industrial properties.
Environmental exposure and infrastructure maintenance – Even with reduced infrastructure, climate and adverse weather is a pertinent risk factor to IOS assets. Therefore, effective surfacing and drainage is often a must for occupiers. Best-in-class IOS sites will be levelled, graded, and have efficient utilities/services installed to prevent water from pooling or causing damage to assets and equipment. Ideally, developers should implement a proactive maintenance plan that includes ongoing upkeep, frequent inspections, repairs, and surface care to mitigate site degradation.
Previous occupation – Development of IOS sites could be hindered by any contamination issues caused by historic use. Specialist Environmental Impairment Liability Insurance can be purchased to mitigate this risk.
Surveillance and security –Security and surveillance measures are fundamental to deter potential criminals are critical. Access control systems, security personnel, surveillance cameras, and fencing can be used to protect inventory and assets from theft and damage at IOS spaces. Heightened security measures may be essential to attract and retain superior tenants; however, the increased costs associated with installing this can potentially strain budgets.
It is imperative that developers conduct thorough due diligence for any I&L project to ensure all risks are appropriately mitigated, through risk control and insurance coverage.
For further information, please visit our Global Real Estate and Construction page (opens a new window) or contact a member of the Lockton team.
