Why Businesses Are Turning to Industrial Outdoor Storage (IOS) in the Reshoring Movement
SoCal Reshoring bolstered by IOS
Industrial Outdoor Storage (IOS) has become a cornerstone of Southern California’s economy, providing vital space for vehicles, large equipment, containers, and raw materials. These industrially-zoned assets are crucial to the logistics and distribution process, particularly in the last-mile distribution of goods.
Retailers, logistics providers, and manufacturers use IOS for transferring goods to transportation vehicles, parking fleet vehicles, and storing containers and equipment not needing indoor space. Likewise, importers and manufacturers use IOS for a range of purposes, from temporarily storing materials to holding finished products.
What Factors Are Driving Industrial Storage Demand in Southern California?
E-commerce growth, manufacturing reshoring, and booming global trade are driving the need for efficient storage and logistics solutions, with Southern California at the heart of this demand. The region’s strategic role in international trade, coupled with government infrastructure investments, has made IOS facilities essential for modern supply chains, supporting everything from online shopping to large-scale construction projects.
E-commerce Growth and Its Impact on the IOS Market
The rise of e-commerce is a primary driver of interest in IOS assets, with manufacturing reshoring further amplifying the need for streamlined supply chains to support online retail growth. While brick-and-mortar stores have returned to normal operations following the COVID-19 pandemic, many consumers have embraced the convenience of online shopping, a shift that’s expected to persist.
As e-commerce supply chains expand, the demand for logistics and storage space continues to grow. IOS has emerged as a key solution, providing scalable options for businesses to optimize operations. With rising needs for truck terminals, equipment storage, and parking, IOS sites are becoming increasingly valuable in helping companies maintain flexibility, competitiveness, and operational efficiency.
Continued Growth in Port Volumes
The growth of e-commerce has driven record import volumes into U.S. ports, fueling demand for nearby land to ease congestion and store containers. For example, December 2023 saw a 9.2% increase in container imports compared to the previous year, a trend expected to continue. The need for container storage remains strong along coastal markets, particularly at the Ports of Los Angeles and Long Beach, which are among the busiest in the nation. As port volumes rise, Congress is prioritizing infrastructure improvements to support the growing demands of modern logistics.
Government Infrastructure Investment on IOS
The $1.2 trillion Infrastructure Investment and Jobs Act, passed by Congress, will play a crucial role in modernizing U.S. infrastructure, including roadways, bridges, ports and waterways, and freight rail. As this funding flows into large-scale projects, demand for IOS will rise across a range of industries, including construction, equipment leasing, material supply, and others that rely on IOS for their operations.
Principal advantages of IOS
Industrial Outdoor Storage (IOS) offers numerous advantages for investors and businesses, combining cost efficiency, minimal maintenance, and reliable cash flow. Below, we explore the principal benefits that make IOS an attractive option in commercial real estate.
1. Low Upfront Investment
IOS offers lower upfront investment compared to traditional industrial properties.
Minimal Construction: Basic site preparation, including land grading, paving, fencing, and lighting.
Lower Land Costs: Available in industrial zones or outskirts, offering larger parcels at lower prices.
Reduced Infrastructure Needs: Only basic utilities like electricity and small office/security services.
Simplified Permitting: Quicker, less complex approval process with fewer building code requirements.
Lower Design Costs: Fewer architectural and engineering services required, focusing on efficient layout.
2. Minimal Ongoing Maintenance and Operating Costs
IOS facilities have significantly lower ongoing maintenance and operating costs than conventional CRE.
Minimal Maintenance: With few or no enclosed structures, there's little need for roof repairs, HVAC upkeep, or interior maintenance. The primary focus is land upkeep, such as occasional resurfacing and maintaining security.
Lower Utility Costs: These properties use minimal energy—only for lighting and security—resulting in lower electricity and water consumption.
Simplified Management: Straightforward design means fewer maintenance issues and simpler leases, which can reduce management costs.
Reduced Insurance and Taxes: With fewer structures, insurance premiums are lower, and the property's assessed value is often lower, leading to reduced property taxes.
Less Landscaping: Maintenance is limited to basic tasks like weed control and occasional grading, minimizing costs.
Cost-Effective Tenant Improvements: Tenant needs are typically simpler, such as adding gravel or basic security, making improvements less expensive.
3. Lower Barrier to Entry Compared to Other CRE Types
IOS offers a more accessible entry point into CRE, providing advantages that lower the barrier to entry.
Lower Capital Requirements: Less upfront investment is needed, with no need for expensive construction or complex infrastructure.
Simplified Development: The development process is quicker and less complicated, with fewer building codes and permitting requirements.
Flexible Zoning: IOS can be developed on land zoned for various industrial uses, offering more location options.
Easier Financing: Smaller loan amounts and a lower risk profile make financing more accessible.
Scalability: Investors can start with a smaller parcel and gradually expand as capital allows.
Streamlined Due Diligence: Fewer systems to evaluate make the due diligence process quicker and easier.
Faster Time to Market: Shorter development and leasing timelines allow for quicker returns.
4. Reliable and Consistent Cash Flows
IOS facilities are highly attractive for generating stable, long-term cash flows.
Low Tenant Turnover: High relocation costs keep turnover low, reducing vacancy periods and marketing costs.
Diverse Tenant Base: Serving various industries reduces dependency on a single sector, ensuring steady demand.
High Occupancy Rates: Ongoing demand and limited supply contribute to high occupancy, maximizing rental income.
Low Capital Expenditures: Minimal infrastructure maintenance results in more rental income translating to stable cash flows.
Additional Revenue Streams: Opportunities for ancillary income, such as fueling stations or small retail spaces, boost overall cash flow.
Economic Resilience: IOS properties remain stable during economic downturns, offering consistent income even in tough markets.
Flexible Lease Structures: Combining long-term and short-term leases, along with percentage rent clauses, helps optimize cash flow.
Low Operating Costs: Reduced maintenance and utility expenses increase net income and enhance cash flow stability.
Sustainability and Environmental Benefits of IOS
Programs such as California’s Title 24 Energy Efficiency Standards are driving real estate and business in the region toward greater environmental responsibility. As a result, the environmental benefits of IOS are becoming increasingly attractive. These facilities help promote eco-friendly solutions by reducing energy usage, lowering emissions, and incorporating green features like solar power and water recycling. With incentives encouraging sustainable practices, IOS not only supports modern business needs but also positions itself as a forward-looking solution for the future of logistics and storage.
How to Strategically Navigate Southern California’s Commercial and Industrial Real Estate Market
Partnering with industry experts like The Klabin Company can significantly elevate your decision-making process — with over 60 years of experience specializing in the Southern California industrial and commercial markets, we are dedicated to delivering unparalleled service and expertise tailored to your needs. Our deep knowledge of local market dynamics, coupled with our commitment to integrity and innovation, equips our clients with critical insights into emerging trends and opportunities. We prioritize transparency and collaboration, ensuring that your strategy aligns seamlessly with your business’s growth and operational objectives. By leveraging our extensive network and expertise, you can navigate the complexities of the market to position your business for sustained success in this dynamic and competitive environment.