The once-obscure corner of commercial real estate now riding the AI boom One of the biggest beneficiaries of the AI boom is a barely known commercial real-estate business.

Demand for industrial outdoor storage—or yards used for stowing construction equipment, materials, and delivery vehicles—is soaring alongside the rapid build-out of data centers.

For every gigawatt of data center capacity built, some 100,000 truckloads of steel, concrete, generators and equipment are required, according to DAT Freight and Analytics. These storage yards, often less than 10 acres, hold those items and vehicles near data-center construction sites.

Owners of industrial outdoor storage facilities are getting more business than they can handle because the U.S. has a scarcity of these properties to accommodate the recent explosion in data centers, which house the infrastructure that delivers artificial intelligence.

In much of the country, getting new land permitted for outdoor storage is nearly impossible, investors said, largely because the sites are overwhelmingly associated with noise and ugliness, making them unpopular with local governments and residents.

“The municipalities are not really creating any more of this stuff,” said Pasha Johnson, principal of Steel Peak, an industrial real-estate owner backed by Tarsadia Investments, a family office.

Now, some big property investors are getting involved. Brookfield this year said it was acquiring industrial outdoor storage owner Peakstone Realty Trust for $1.2 billion. J.P. Morgan Asset Management, meanwhile, has joined with Zenith IOS to assemble a portfolio of about 100 properties in 33 markets. In August, a Starwood Property Trust venture provided a $672 million loan for a portfolio of these properties.

Investors are betting that rents and values will continue to outperform other property types because of the extreme imbalance of supply and demand.

“That’s what [it’s] really all about,” said Max Heiden, co-founder at Catalyst Investment Partners, an outdoor storage owner. “You don’t get that in pretty much any other real-estate category.”Booming demand for these storage yards shows how much data center development has come to dominate the commercial property landscape, despite recent bond market jitters around some of the riskier AI companies. Property funds now allocate more money to real-estate investment trusts focused on data centers than to those focused on office, residential or retail properties, according to data from Nareit.

Nationally, rents for industrial outdoor storage have risen 32% since 2021, according to real-estate services firm CBRE. But for the most in-demand markets near ports on the East Coast and in the South, rents are rising much higher, according to data collected by Alterra IOS.

Rent prices are up more than 110% since 2020 across the top eight of those markets, which include Houston, Savannah, Ga., and Norfolk, Va., Alterra said. Major data center markets like Phoenix and Atlanta are also seeing high rent increases.

In some cases, data center construction is itself contributing to the shortage, Heiden said. In Manassas, Va., for example, more than 200 acres of outdoor storage space is slated to be replaced by new data centers, representing more than 20% of the existing outdoor storage supply there.

Because individual storage lots are often small, they are priced too low to attract direct attention from the biggest investors on Wall Street. Instead, so-called aggregators such as Alterra IOS, Catalyst Investment Partners and Zenith IOS pick off dozens of lots from regional firms and mom-and-pop owners to create institutional-grade portfolios.

Catalyst has built a $1.4 billion outdoor storage portfolio over the last six years, focusing on densely developed markets such as Northern Virginia and Atlanta, where data center construction is also strong. Its lenders include Blackstone, whose real estate lending arm has financed more than $1 billion in outdoor storage-property deals.

Most outdoor storage is still held by small private operators, such as local trucking companies or equipment rental businesses, many of which have owners reaching retirement age. Investors are betting that many of these owners will be looking to sell soon.

The deep pockets of data center developers and their related contractors has meanwhile buoyed outdoor storage rents, as those rents represent such a small fraction of their total costs, said Chris Hope, a senior managing director at commercial property brokerage Newmark. “That’s one of the things that allows continued pricing power of the landlord,” he said.

Data centers aren’t the only drivers. Infrastructure construction has also been a big boon to the sector, and record municipal bond issuances to fund such projects have only increased investor optimism this year.

And sales of storage sites have faced some of the same constraints as other commercial real estate, including the rise in interest rates. But investors see more buying opportunities on the horizon.

Heiden estimated there is roughly $300 billion in U.S. industrial outdoor storage out there to buy.

“That’s kind of on par with some other niche real-estate categories that used to be all mom-and-pop owned and today are not,” he said.