If you’ve ever been frustrated driving around a parking lot, trying to find an empty spot or discreetly tailing shoppers headed to their cars, you’ll understand the frustration large commercial trucks face as the country experiences an unprecedented shortage in commercial truck parking.
The Federal Highway Administration (FHWA) has found that the demand for truck parking eclipses the available supply in public and private facilities across the country, spurring buyer interest and new investment opportunities.
Outdoor storage and truck/trailer facilities have hit all-time highs in terms of values and demand. But, finding these scarce and expensive properties for owners, users, and investors has never been more difficult.
Rise of E-Commerce Spurs Demand
In Minnesota, and nationwide for that matter, the rise of e-commerce has created a boom in the demand for industrial outdoor storage and terminal, parking, and maintenance facilities. These facilities are critical real estate for a company’s business and logistics, ensuring they can move goods easily and quickly from one location to another.
As customers continue shifting their shopping behavior to the online space, vacancy rates for this type of industrial real estate are at an unparalleled low, with many vying for fewer and fewer options.
Demand has never been higher. Over the next five years, the U.S. projects they’ll need one billion square feet of industrial space to keep up with e-commerce demand. As of 2021, U.S. industrial space accounts for over 10 billion square feet.
The ever-rising need for industrial real estate offers investors an incredible opportunity. Truck parking and maintenance facilities are relatively easy to manage, easy to lease and provide dependable revenue, leaving little question as to why the pool of buyers and investors for industrial real estate is becoming ever more crowded.
However, as the value and scarcity rise for these facilities, so do the real estate values.
We are seeing outdoor storage and parking sites sell above $20 PSF (per square foot) for the land. Outdoor storage lease rates are starting to creep above $2.00 PSF.
Cap rates for these properties are compressing constantly, fueling an extraordinarily competitive market.
Location, Location, Location
Prime locations for parking, outdoor storage, terminals, and maintenance facilities are sparse. Naturally, owners, users, and investors want ideal locations, typically within a metropolitan area, close to roadways, or with close proximity to a port.
Unsurprisingly, these are the locations where space is limited and expensive.
Expansion and building new lots to accommodate growing needs face several challenges. Along with finite space and uncharted pricing, industrial real estate must navigate zoning issues and public outcry against unsightly trucks, loud noise, and pollution created by trucks.
Minnesota saw the effects of these challenges firsthand.
Parking Bans
In the Twin Cities, trucks were ever-present, parking on city streets and in residential areas, sometimes idling next to signs explicitly saying No Commercial Vehicle Parking. Complaints rolled in to St. Paul’s Department of Safety and Inspections, and they have been receiving around a dozen truck parking complaints a month.
Complaints stated the trucks block sight-lines, block traffic, block bus stops, narrow streets (dangerous in winter when streets are already narrow from snow), and sit idle for hours, making it more difficult to drive or walk safely in the area. Public opposition prevailed, resulting in a Minneapolis truck parking ban on city streets with fines starting in 2022.
Trucker Troubles
What we see in Minneapolis is happening all around the country. Truckers are having great difficulty finding available parking, leading to illegal or unofficial parking, often in unsafe locations (for both driver and public) such as on shoulders or local streets.
Adding in another obstacle for truckers, government regulations mandate truck drivers take a break every 14 hours to rest, refuel, sleep, and eat. This means the demand for safe parking and maintenance facilities is crucial. Not just for a company’s logistics but for drivers as well.
For investors looking to cater and attract more drivers, facilities that offer fencing, security, food, shelter, and maintenance are most desirable for many drivers. Additionally, lots providing further amenities such as maintenance, fuel pumps, or an electrical connection to run cabin heat or air conditioning without idling the engine will be a big draw for truckers.
And for some of these class A and B properties expect a bidding war. With industrial properties few and far between, be prepared for rapid negotiations and accelerated timelines.
Investor Strategy
Industrial real estate presents a remarkable opportunity for investors and buyers. But, with more interest and investors vying for limited and expensive properties, never has partnering with a real estate professional been more important.
If you’re working with a group that has not been involved in this space during the past couple of years, they won’t know what the market is bearing during these unprecedented times. You may be left either paying far more or losing the bid altogether.
Working with a professional that has transacted in all phases (Buy, Sell, Lease) is critical as a sense of urgency and underwriting confidence are paramount to a deal’s success today.
With 37.9 million trucks registered and used for business purposes, outdoor storage and truck/trailer facilities will continue to be a growing necessity and opportunity for investment. And partnering with the right real estate professionals for this property type has never been more important to successfully transact.
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