Open storage forward funding

Open storage forward funding is a structure in which an investor funds the works that bring an industrial outdoor storage site to a lettable standard and takes title on completion, most often where the scheme carries a hardstanding build-out, an ancillary building or a pre-let covenant. Industrial outdoor storage, commonly abbreviated to IOS and also called industrial open storage, is low-site-cover open land used for HGV and trailer parking, container storage, plant and materials, vehicle and equipment hire, and builders merchants. The asset is defined by what it is not: it is not a warehouse. Very little of its value sits in bricks and mortar, and most sits in the consented open area, its access to the road network and the durability of demand for yard space in locations where industrial land is being lost to higher-value uses. This page sets out the market context, why institutions fund the sector, the structure variants that suit it, the specification and covenant tests investors apply, indicative pricing, a worked example and the process, and it is candid throughout that forward funding is a smaller part of IOS than standing-asset aggregation. For the underlying mechanics, see our forward funding explainer.

Because IOS often involves minimal construction, forward funding applies to a narrower slice of the sector than in logistics or living. It is relevant where there is genuine work to fund, a full hardstanding and drainage build-out, a workshop or gatehouse, or a scheme that is pre-let to a covenant worth committing to through the programme. Where a site is simply consented open land with light works, investors more often buy it as a standing asset and add value by re-gearing short leases. This page treats the forward-funding case specifically and is honest about its limits.

6.00% to 6.50%

Prime IOS net initial yield

Q2 2026

£10m to £60m

Scheme GDV range

12% to 20%

Developer return on cost

Under 20%

Typical site cover

Definition and IOS market context

Industrial outdoor storage is a scarcity asset created by the redevelopment of industrial land for logistics, residential and other higher-value uses. As open yards and low-grade industrial plots are consented away, the remaining stock of land that can lawfully be used for open storage becomes harder to replace, while demand from hauliers, container operators, plant hirers, waste and recycling operators, utilities contractors and builders merchants continues to grow. That imbalance, cheap to hold land against rising rent for a use that cannot easily be relocated, is the entire investment thesis. IOS carries low capital intensity, negligible building depreciation and near-zero functional obsolescence, because there is little building to become obsolete. The trade-off is short and historically informal leases and a sector that is still institutionalising.

Named institutional activity in UK IOS is concentrated among a small group of specialists, which reflects the sector’s early stage. NW1 Partners has publicly committed substantial capital to industrial outdoor storage across the UK and internationally and is among the most active platform investors. Moorfield Group has set out the open storage opportunity and taken UK positions, and Tristan Capital Partners has acquired UK sites with open storage designation. Realterm operates transportation-focused industrial and IOS assets across the UK and Europe, and Prologis holds extensive UK industrial land within which open storage uses feature. Beyond these names the buyer base remains dominated by specialist aggregators assembling portfolios yard by yard, which is precisely why forward funding, a route that suits built or pre-let schemes, is the exception rather than the rule.

Why investors forward fund open storage

Institutions pursue open storage to own scarce, low-cost, reversionary industrial land let to occupiers who cannot readily move, and they forward fund it where a scheme carries works or a covenant that reward committing early. The appeal is structural. Capital intensity is low, so a given quantum of equity controls a large land area. Depreciation is minimal, because a hardstanding and a fence do not obsolesce the way a warehouse fit-out or a residential block does, which protects the real value of the asset over a long hold. And the reversion is powerful: short leases that would be a weakness in a built sector become a strength in IOS, since each renewal captures rental growth in a land market that is only tightening.

Forward funding adds two things to that thesis. It gives the investor a keener entry than buying the completed, let asset, because the funder takes build-period and, frequently, letting risk. And it lets the investor secure a scheme that would otherwise be bought by an aggregating competitor, in a sector where the constraint is finding lettable, well-located sites at all. The honest counterpoint is that the works are usually modest, so the yield discount for funding is smaller than in warehouse development, and the case for forward funding rests as much on securing the land and the covenant as on capturing a development margin. Where a scheme is pre-let to a strong logistics, transport or trade occupier, forward funding delivers contracted income on a scarce asset from day one, which is the cleanest expression of the strategy.

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Short IOS leases invert the usual logic: in a land market that only tightens, each renewal is a chance to capture reversion rather than a source of income risk.

Structure variants

Open storage forward funding takes three practical forms, distinguished by how much building is involved and whether income is contracted at commitment. Each allocates works risk, letting risk and reversion differently.

The first is forward funding of a hardstanding yard scheme with a building element. Here the investor funds the works to convert raw or under-used land into a lettable yard, engineered hardstanding, surface water drainage and interceptors, perimeter security and gated access, power, and a modest ancillary building such as a gatehouse, workshop or small warehouse. The building element is what makes the funding case cleaner, because it gives a defined construction programme to draw against and a piece of insurable, certifiable built value. This is the most common forward-funding form in IOS precisely because a pure land-only site offers little to fund.

The second is a pre-let forward funding to a logistics, transport or trade covenant. The developer secures an agreement for lease with a named occupier, a haulier, parcel operator, plant hirer or merchant, before or during the works, so the investor funds a scheme with contracted income from completion. Pricing is keenest here because the covenant, rent and term are known at commitment. The interaction between the funding and the letting is set out in our pre-let structures guide, and the covenant test is treated below.

The third is forward funding of an open storage plot within a wider industrial scheme. A developer delivering an industrial or urban logistics park may hold back a portion of the site as open storage, either because the land is awkward to build on or because yard demand supports strong land value. An investor can forward fund that plot alongside or separately from the built units, taking a low-cover, high-reversion component within a larger delivery. The land-ownership question, and whether the investor takes title from the golden brick or from an earlier point, is negotiated in the funding agreement and shapes both risk and tax treatment.

What investors require

Investors require a lawful and durable open storage use, a robust yard specification and a location the market cannot easily replace, with a covenant that justifies the entry price. Unusually for a real estate sector, the planning position outranks the physical specification: an unimpeachable consent for open storage or B8 use, without onerous conditions on hours, vehicle movements or hardstanding coverage, is the single most valuable attribute, because it is the thing that cannot be recreated as land is redeveloped. The physical tests then follow.

Requirement	Institutional benchmark
Planning and use	Clear B8 or sui generis open storage consent, unrestrictive conditions
Hardstanding	Engineered, HGV and container-rated, well-drained, minimal ponding
Drainage	Surface water attenuation with oil and fuel interceptors where required
Security	Full perimeter fencing, gated and monitored access, lighting
Power	Adequate supply for lighting, EV charging and any refrigerated or plant use
Site cover	Deliberately low, commonly under 20 per cent built
Location	Direct strategic road access, near ports, conurbations or logistics clusters

Ground condition and contamination are the diligence items that most often move price or kill a scheme. IOS sites are frequently former industrial, transport or waste land with a history that demands intrusive investigation, a remediation strategy and, in many cases, environmental indemnity. Because the asset is open land, contamination is both more likely and more consequential than on a sealed warehouse floorplate. The covenant test is lighter than in single-let logistics but still real: hauliers, plant hirers and merchants are often private, unrated businesses, so investors weigh trading history, sector resilience and the ease of re-letting a generic yard, which is high, against the strength of any single tenant. Scale sits below prime logistics, with scheme lot sizes of £10m to £60m of gross development value, reflecting lower capital cost per acre and a market that assembles value across multiple sites.

Indicative pricing dynamics

Prime UK industrial outdoor storage priced at around 6.00 per cent to 6.50 per cent net initial yield as at Q2 2026, with secondary and shorter-income sites pricing wider towards 7.50 per cent and beyond. Pricing balances two opposing forces: acute land scarcity and strong rental growth, which compress yields, against short leases, private covenants and a less mature market, which hold them wider than standing logistics. The table below is indicative and should be read against the date stamp; all figures are net initial yields.

Net initial yield by IOS profile As at Q2 2026

Prime pre-let

6.00% to 6.50%

Prime open market let

6.50% to 7.00%

Secondary or short income

7.00% to 7.50%

Weak covenant or works risk

7.50% to 8.00%

6 % 7 % 8 %

Profile	Indicative net initial yield (as at Q2 2026)
Prime location, pre-let to a strong logistics or trade covenant	6.00% to 6.50%
Prime location, let at open market rent, mixed covenants	6.50% to 7.00%
Secondary location or short unexpired term	7.00% to 7.50%
Weaker covenant, planning risk or speculative works	7.50% and wider

The defining pricing dynamic in IOS is that the passing yield understates the return, because reversion does much of the work. A yard let at a historically low rent on a short lease will re-rate sharply at renewal in a tightening land market, so investors underwrite the reversionary yield alongside the net initial. That is why a sector with short leases can price inside where covenant and lease length alone would suggest. Developer return on an IOS forward funding commonly runs at around 12 to 20 per cent on cost, wider than prime logistics because the market is thinner, works are bespoke and letting is often speculative or to a shorter covenant; a firm pre-let compresses the return towards the lower end. Return is funded through staged drawdowns as a fixed fee or profit share on certified cost. Live pricing should always be confirmed against current evidence, and definitions of the terms used here are in our glossary.

Worked example

Panel Investor A, a core-plus real estate fund building IOS exposure, forward funds a hardstanding yard scheme with an ancillary building at an indicative net initial yield of 6.40 per cent. The figures below are illustrative and rounded to show how a typical structure is built up; they are not a specific transaction.

Metric	Indicative figure
Site area	6.5 acres, engineered open storage yard
Built element	12,000 sq ft workshop and gatehouse, under 5 per cent site cover
Occupier	Regional haulage and container operator, pre-let
Lease term	10 years, tenant break at year five, five-yearly reviews
Passing rent	£1.35m per annum (yard and building blended)
Gross development value	£21.1m
Net initial yield on GDV	6.40%
Total development cost	£17.5m to £18m, land-weighted
Developer return	Approximately 15% on cost
Drawdown period	6 months to practical completion

In this structure Panel Investor A commits at exchange, acquires the land interest, and funds certified works, hardstanding, drainage, interceptors, fencing, power and the workshop, across a short six-month programme. The scheme is pre-let under an agreement for lease, so the blended income is contracted from practical completion. The developer earns roughly 15 per cent on the cost it delivers, paid through the drawdown mechanism, while the investor takes a scarce, low-cover industrial yard on a strategic road corridor. The initial 6.40 per cent understates the medium-term return: with the passing rent set below the open market level and land supply tightening, the reversion at review and renewal is the source of value, and the near-total absence of building obsolescence protects it over the hold.

Process and timeline specifics for IOS

The IOS process runs from heads of terms through unconditional exchange to a short works programme and completion, and it is faster than most sectors because the construction is light. Heads of terms fix the yield, the funding structure, the land basis, the works obligations and the profit mechanism. Due diligence then covers three streams, but with a different weighting from a warehouse scheme: planning and environmental work carries the most risk, because the value depends on the consent and because contamination on former industrial land can be material; technical diligence on the hardstanding specification, drainage and any building is comparatively simple; and covenant diligence assesses often-private occupiers and the ease of re-letting a generic yard. Exchange typically follows six to twelve weeks after heads of terms, with the planning and ground conditions the usual critical path.

Timing from commitment to income is short. The works, hardstanding, drainage, security and any modest building, commonly run three to nine months, against twelve to eighteen for a large warehouse, so capital is at risk for a materially shorter period and income arrives sooner. On a pre-let, the agreement for lease fixes the occupier’s obligation to take a lease on completion of the yard to a defined standard, and its terms and longstop dates must be settled before the investor commits with confidence. Completion and the transfer of title occur at practical completion, when the tenant takes access and rent commences. Investors weighing the timing and risk transfer of funding against a deferred purchase should review our forward funding versus forward purchase analysis, and those comparing open storage with adjacent industrial strategies can browse our other industrial sector pillars. To discuss a live IOS scheme, contact our team.