(4 min read)
While logistics has historically centred on big box sheds and distribution centres, several converging trends are pushing operators, developers and investors towards open storage solutions. Industrial Open Space (IOS) has moved from a secondary, under analysed use to a defined sub sector that is outperforming much of traditional logistics on both rental growth and capital value. This article explores the structural drivers creating demand for IOS and the challenges the sub sector faces.
The logistics sector has undergone a structural shift over the past decade, and one of the clearest physical manifestations of that change is the rise of Industrial Open Space (IOS)– large, often hard surfaced areas used for outdoor storage, staging and manoeuvring rather than traditional enclosed warehousing.
IOS has quickly become mission critical to last mile and regional distribution networks; infrastructure and construction projects and fleet based operations (EV logistics, parcels, returns) and, in some markets, is now outperforming much of traditional logistics on both rental growth and capital value.
Structural drivers of demand
- E commerce and last mile pressures - Rapid fulfilment requires more than racked warehouse space. Operators increasingly need external areas for cross docking and rapid turn around of goods, trailer parking and shunting and short term pallet and container storage during peak periods. Urban and edge of town sites with generous yards are therefore commanding a premium, particularly where they can support last mile or same day delivery.
- Infrastructure and construction pipelines - Major transport, energy and regeneration projects across the UK and Europe are generating demand for open storage to house plant and machinery, building materials and components and site cabins and temporary structures. Logistics providers serving these projects frequently prefer flexible open yards over fixed warehouse footprints, allowing them to scale up and down with project phases.
- Supply chain resilience and diversification - Post pandemic, many occupiers have shifted from “just in time” to more resilient inventory strategies. That has fed demand for overflow and buffer storage outside the main warehouse footprint and satellite sites close to ports, rail freight interchanges and key motorway junctions. Open storage can be deployed quickly and at relatively low cost, making it attractive for contingency planning and seasonal capacity.
- Vehicle heavy operations - The growth of sectors such as parcel delivery, EV logistics and specialist transport has increased the need for secure parking and charging areas for fleets, HGV and trailer compounds staging areas for abnormal loads and modular components. These uses are simply not compatible with pure indoor warehousing and depend on substantial open space.
Investor and developer responses
The rise of IOS has prompted a re rating of formerly secondary assets such as low build density sites, older estates with oversized yards, and well located plots historically treated as “future development land” or “old industrial" and the demand acceleration (detailed above), supported by the under supply (detailed below) has generated robust annual rental growth for IOS. Key trends include:
- Institutionalisation of open storage - A growing number of investors are forming dedicated strategies around IOS, attracted by strong underlying land value in strategic locations, relatively low capex requirements and shorter build times and faster income generation compared with full warehouse developments. As institutional capital has moved into IOS, yields have compressed materially, particularly for well located sites near ports, motorways (M25, M1, M6, M62), and major conurbations and assets with strong tenant covenants in logistics, construction, utilities and infrastructure. Open storage rents per acre have increased to the point where investors can justify site acquisition purely on IOS returns.
- Repositioning existing stock - Older logistics sites are being repurposed to emphasise yard space rather than buildings. This may involve partial demolition to increase yard area, resurfacing and security upgrades and / or re letting on more flexible terms to occupiers who value manoeuvring and parking capacity.
- New development models - Developers are exploring schemes where the core value lies in large, serviced plots with high power capacity and robust pavements, modular office and welfare units rather than substantial warehouse structures and flexible layouts designed to accommodate changing occupier needs over time.
- Lease terms - IOS is often let on shorter leases (e.g. 3–10 years) than big box logistics, with fewer tenant works and more flexible occupation structures creating more frequent opportunities to capture rental reversion (20-40% uplifts versus historic rents in some London/M25 and major regional nodes).
- Lower capex and obsolescence - Compared with warehouse development, IOS typically requires relatively modest capital expenditure (surfacing, fencing, lighting, services) and avoids the functional obsolescence risks associated with older sheds (eaves height, loading configuration, ESG ratings). Net equivalent yields can therefore look compelling, as gross yields remain attractive; and capex drag is generally limited.
Challenges - Planning, regulatory and ESG considerations
The growth of IOS is not without challenges:
- Supply constraint - Suitable IOS sites must have robust access for HGVs, sufficient yard depth and turning space and planning/use class consent for storage and distribution but the pool of such assets is limited and often locked in existing use, creating structural undersupply.
- Planning and land use - Open storage often requires careful navigation of planning designations, visual impact, noise, and traffic issues – particularly on sites close to residential areas or sensitive environments. Authorities increasingly expect robust transport assessments, screening and landscaping and controls on hours of operation and external lighting.
- Environmental and sustainability factors - Large areas of hardstanding can raise questions around: surface water management and flood risk, biodiversity and heat island effects and long term sustainability credentials compared with higher density built form. As occupiers’ ESG expectations rise, there is growing interest in greener yard designs, permeable surfaces, and integration of renewable energy and EV infrastructure.
- Health, safety and compliance - Open, vehicle intensive environments demand rigorous attention to traffic management and segregation of vehicles and pedestrians’ security and access control and hazardous materials storage where relevant.
Outlook
IOS is now a core component of modern logistics real estate rather than a peripheral or interim use. As supply chains become more complex, delivery expectations more demanding, and land in strategic locations more constrained, the ability to deploy flexible, well located open storage is increasingly critical.
For occupiers, the right blend of indoor warehousing and external yard space can deliver operational resilience and cost efficiency. For developers and investors, the rise of IOS offers both opportunities and challenges: a chance to unlock value from previously overlooked sites, balanced against evolving planning, environmental and regulatory requirements that must be managed proactively.
