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Las Vegas IOS Properties Surge in Popularity

This article is written by Eric Larkin, MBA, CCIM, SIOR, Industrial Real Estate Advisor at NAI Excel - Las Vegas.

Eric Larkin, Industrial Real Estate Advisor at NAI Excel - Las Vegas (Courtesy of Eric Larkin)

This article is written by Eric Larkin, MBA, CCIM, SIOR, Industrial Real Estate Advisor at NAI Excel - Las Vegas.

Industrial Outdoor Storage, abbreviated as IOS, has quietly surged in popularity among Las Vegas real estate investors, growing behind the scenes of the much more publicized boom in Las Vegas warehouse projects.

Industrial-zoned land where users store items such as vehicles, equipment, materials, or containers outdoors summarizes what is now known simply as "IOS." The ideal IOS site is five to twenty acres, fully paved, secured, and lighted, with a modest office/warehouse building on site. Building coverage ratios are generally less than 20% and often much lower.  North Las Vegas has the highest concentration of IOS properties, though several pockets exist across the valley.

Unlike the rest of the Las Vegas industrial property market, IOS property owners are typically individual users or small businesses, not institutions.  For investors, higher returns are possible when buying from one-off sellers.  IOS barriers to entry include difficulty purchasing at scale and encountering old and poorly written leases.  For instance, a 25-year lease signed several years ago with fixed 2% options may leave very little or no upside to a new investor, especially considering that some IOS sites have seen rents more than double in recent years.

Desirable leases today often carry term lengths of five to ten years, have triple-net structures, and carry annual rent increases at or above the inflation rate.  Many investors are looking for quality sites with only a few years remaining term, which they can subsequently renew or re-lease at market rates with minimal capital expenditures to boost returns.

End-users also seek to buy IOS, including truck terminals optimized for quick transfer of goods.  Terminals feature narrow buildings where workers rapidly transfer goods between trucks without storing them long-term.  Less-than-truckload (LTL) logistics operators combine freight from different customers onto single trucks for longer hauls.  The components of terminal buildings are less critical since workers only store goods briefly.  There's no need for complex systems or equipment.  A few offices and restrooms are sufficient.  It's all about maximizing loading dock doors and the outdoor storage component (a "yard") for parking trailers.

Demand for all types of industrial property in Las Vegas remains robust.  IOS properties also benefit from strong barriers to entry due to the limited availability of in-fill industrial land.  The combination suggests strength in this niche market for the foreseeable future.