“With all the development that’s going on, IOS land in Deer Valley is some of the most expensive in the state,” says Aaron Gutierrez, R.O.I. Vice President – Commercial Division. “While average market rents might be $4500-$6000 an acre, that can push to $7000-$10,000 in the area around TSMC in the North Valley. Less expensive submarkets would include along the I-10 corridor in Glendale, but even they are experiencing a crazy amount of growth.”
One of the major recent deals in the category occurred in February, when Zenith Industrial Outdoor Storage acquired 11 infill industrial properties in Phoenix—a total of 280,000 SF across 39 acres—for over $43 million. All are located within seven miles of Sky Harbor International Airport and close to major highways, and all are 100% leased.
Industrial outdoor storage sites are generally located on heavy industrial zoned land, but the level of development can vary and depends on the type of operator. A typical IOS operation might include a 2000 SF office, modular building or small warehouse, and the rest is wide open yard that could be dirt, graded with aggregate, or paved. “The more improvements, the higher the rent or price they can command,” says Gutierrez. “If utilities are not already on the property, that’s another expense in addition to coordinating with the city. The final element is security. Construction equipment and fleet vehicles aren’t cheap, for example, so fencing is another important improvement to consider.”Is the market potentially getting overheated? Gutierrez believes there is still plenty of room to run for the foreseeable future. “When everyone is flocking to a sector, things can get overinflated, so vacancy is going to be something to watch,” he says. “But there’s simply not a lot of buy-side supply with the right zoning, and there’s no expectation that cities are going to designate a massive area of land for IOS or reclaim Central Avenue for storage.”