Scaling Up: Challenges and Opportunities in the IOS Sector

The fragmented and scattered nature of ownership in the UK’s Industrial Outdoor Storage (IOS) sector is arguably the biggest barrier to scaling for investors. The high prevalence of private landlords makes institutional expansion complex and slow-moving, requiring time and an element of creativity to assemble and aggregate portfolios - more on that later.

But with every challenge comes opportunity. So why is IOS continuing to gain in popularity among UK investors?

Firstly, because of the strength of the sector’s fundamentals and the growing recognition of its role in logistics, transportation, construction, infrastructure and manufacturing. In the face of persisting economic challenges and the cost-conscious occupier environment, a rising number of both traditional and new occupier sub-sectors are viewing outdoor sites as a practical, strategic and cost-effective solution to their storage and logistics needs. As of Q1 2025, prime IOS rents—averaging £2.62 psf across the nine key regional submarkets—offer a 78% discount compared with prime traditional warehousing rental values at just over £12.00 psf (units over 50,000 sq ft).

Secondly, the significantly lower capex and maintenance required of the asset class. In other words, investors can gain an early entry into a sector that has all the key drivers of traditional industrial but at a fraction of the capital costs.

Thirdly, and perhaps most crucially from an investor’s standpoint, the upsides for rental growth and net operating income ensuing from this greater occupier demand, particularly when sites are purchased from less sophisticated owners. Sites that have historically been undermanaged allow investors to drive performance in ways not typically seen in traditional warehousing, and sites offering long-term redevelopment potential enable investors to continue income generation during the planning phase for future redevelopment.

Resilience of Prime IOS Rents

Prime IOS rents remain resilient, much like rents for traditional prime industrial properties. In the opening three months of 2025, rents for prime IOS sites have remained largely unchanged from the end of 2024, averaging £2.54 psf across 41 markets and £2.62 psf across the nine key UK submarkets.

But there are many nuances surrounding prime ERVs and rental growth in IOS. One of the challenges in the IOS occupier market is the limited supply of truly Grade A IOS land. This lack of available stock and subsequent lack of transactional evidence is hindering movements in prime rental values in several markets. Similarly, many of the sites that are available may have suboptimal surfacing and infrastructure, categorising them as secondary assets and this is reflected in their rental values.

Other locations are witnessing reasonably good levels of supply; however, in an evolving IOS market, this is met by the cautious occupier who may struggle to justify the premium rent quoted by the institutional landlord or the newly formed specialised operating platform.

The combination of these nuances means that while rental tones are moving, the pace of growth is slower than that seen in 2023/24. Annually to Q1 2025, prime IOS rents have risen by 5.5%; this follows 15% growth recorded in the full year 2024 and 23% growth annually to Q1 2024. The strongest regional annual growth in prime IOS rents (to Q1 2025) was in the Midlands region (+23%), followed by Wales (+11%). London and the South East region recorded 2.1% growth year on year.

The primitivity of the sector and its lack of data poses an issue for investors, too. This absence of transparency presents difficulties for benchmarking rents and asset performance.

Large portfolio comparables remain rare, but momentum is building. One of the largest IOS transactions in the UK includes Almcor’s and Cerberus’ recent acquisition of the 45-acre Childerditch Industrial Park in Brentwood, from Brentwood Borough Council, for its European Industrial Services Facilities (EISF) joint venture. The park comprises a mix of open storage plots and multi-let industrial units, most of which benefit from significant excess yards (<50% site cover). Fully let to 28 tenants, the average IOS rent at the park is £2.80 psf with significant reversionary potential to £4.50 psf. Transactions such as these will be key to helping investors understand the scalability benefits of IOS investments.

The Element of Creativity: Redevelopment, Repositioning, Restructuring

The supply outlook for IOS is among the most compelling in UK commercial real estate. Vacant land near major logistics hubs is virtually unavailable for new IOS development, while a portion of existing IOS inventory is redeveloped each year into traditional industrial or higher value uses.

Herein lies the opportunity. Given the challenges surrounding ownership fragmentation, early-mover investors with a creative approach can unlock significant value. By identifying fragmented ownership structures and engaging with landlords holding smaller, multi-site portfolios, investors can capitalise on underutilised and undermanaged land through redevelopment, repositioning, and lease restructuring. Strategic acquisitions and active asset management of underutilised sites will be key to maximising returns.