The Overlooked $300 Billion Asset Class: How America's Operational Real Estate Sector Is Quietly Reshaping Commercial Property

For decades, a particular segment of American commercial real estate has operated largely beneath the radar of institutional investors, financial media, and even many seasoned property professionals.

The Hidden Giants of Commercial Real Estate

Industrial Outdoor Storage: The Supply Chain's Safety Valve

Industrial outdoor storage (IOS) properties—essentially paved lots with minimal structures used for storing trucks, containers, and equipment—have rapidly evolved from an afterthought to a critical component of modern logistics infrastructure. These properties are essentially low-coverage industrial sites (often <20% building coverage) used for storing trucks, trailers, containers, construction materials, and equipment.

The sector's performance metrics tell a compelling story. According to Newmark, IOS has experienced 123% rent growth since 2020, compared to just 58% for bulk warehouse space. In-place yard rents in 2024 commonly range from $5,000–$6,500 per acre per month in high-demand regions, with average rental rates hovering around $5,500 per acre per month in major Texas markets.

"The IOS market has boomed in the past five years, as investors have flocked to the sector chasing yield in an increasingly competitive industrial market," notes analysis from Colliers. The first movers in the institutionalization of the niche were considered aggregators; that is, smaller investment firms that would purchase IOS properties on a one-off basis and build larger portfolios.

Self-Storage: America's Attic

The self-storage sector, long dominated by Public Storage and Extra Space Storage, continues its march toward full institutional acceptance. The global self-storage market size was estimated at USD 60.41 billion in 2024 and is predicted to hit around USD 107.36 billion by 2034, with a notable CAGR of 5.92%.

North America maintains leadership with 45% of global revenue in 2024, reflecting deep consumer familiarity and institutional consolidation. The sector's resilience stems from its connection to life events rather than economic cycles. Personal customers accounted for 73% of the United States self-storage market in 2024, providing stable demand through relocations, divorces, downsizing, and other personal transitions.

Recent institutional activity underscores the sector's maturation. In January 2025, Newmark brokered the recapitalization and joint venture between Hines and CubeSmart for a 14-property self-storage portfolio in Dallas-Fort Worth, marking one of the largest U.S. self-storage portfolio transactions of 2024.

Car Washes: The Recession-Resistant Revenue Machine

The car wash industry represents perhaps the most dramatic example of rapid institutionalization within operational real estate. Private equity made inroads into the car wash industry with Imperial Capital acquiring Riptide Auto Wash, Wafra acquiring Motor City Car Wash and Skyknight Capital adding HyperShine Car Wash to its portfolio.

M&A activity in the car wash space experienced a boom from 2019–2022 led by a significant wave of $10 billion+ of investment by private equity firms and family offices. The attraction is clear: A single, well-run express car wash location can generate about $1 million of Ebitdar, or Ebitda plus rent, on $2 million in annual revenue.

However, the market has shown signs of cooling. Transaction count is down ~46% and the number of sites sold and acquired is down nearly 40%, both compared to the first half of 2023. Despite this temporary slowdown, industry experts remain bullish on long-term prospects as the sector continues to evolve from a fragmented, cash-heavy business model to a sophisticated, subscription-based recurring revenue model.

Small-Bay Industrial: The Backbone of Local Manufacturing

Small-bay industrial properties—facilities under 50,000 square feet divided into smaller units—have emerged as one of the strongest performing segments within industrial real estate. Transactions of light industrial properties under 150,000 square feet accounted for 62% of industrial transaction volume in 2024, up from 58% in 2023, and 20% of this light industrial volume last year was attributed to institutional buyers.

The supply-demand imbalance in this sector is particularly acute. In Las Vegas, for instance, the vacancy rate for industrial spaces under 30,000 sq. ft. is a scant 2.7%, roughly half the 5% vacancy rate for the broader market. The 90 million square feet of small bay industrial space currently under construction nationwide represents just 0.5% of existing stock.

According to Newmark's Q3 2024 U.S. Industrial Market Conditions and Trends report, industrial spaces under 100,000 square feet, including small bay assets, represent 41.6% of the industrial market (the largest in terms of share of inventory) and have a vacancy rate of only 4.3%.

The Convergence of Scarcity and Succession

The Silver Tsunami

Perhaps no factor looms larger over the operational real estate sector than the impending retirement of Baby Boomer business owners. The Small Business Administration estimates that around 10 million businesses owned by baby boomers will exchange hands between 2019 and 2029.

The scale of this transition is staggering. Boomers own 2.34 million small businesses in the U.S., employing more than 25 million people. Yet more than 58% of small business owners have no transition or succession plan. Retiring Boomer business owners will sell or bequeath $10 trillion worth of assets over the next two decades.

For operational real estate, this demographic shift presents both opportunity and risk. Many of these businesses—from HVAC contractors needing equipment yards to marine service companies requiring boat storage—operate on land-backed properties that represent significant real estate value independent of the operating business.

"These business owners tend to be very active. They work. And a lot of their identity and reason to get up in the morning is tied to this business," noted Andy Kocemba, president and CEO of Calhoun Companies, a Twin Cities–based business brokerage. This emotional attachment often delays sales decisions, creating pent-up supply that will eventually need to be resolved.

Land Scarcity Meets Insatiable Demand

Underlying the entire operational real estate thesis is a fundamental constraint: industrial land scarcity. Companies adopt automation and robotics, their facility requirements are evolving rapidly. With industrial spaces increasing in size to accommodate technological shifts, occupiers face growing constraints due to land scarcity—especially near transportation hubs and ports.

Zoning regulations compound this scarcity. Most of the residential land in this country is zoned for detached, single-family houses, and restrictions like minimum lot size and square-footage requirements and height limits make it really hard to build anything else. The limited availability of industrial-zoned land creates a moat around existing operational real estate assets.

This scarcity drives impressive rent growth and value appreciation. Less than 15% of the Southern California submarket meets the criteria for industrial outdoor storage zoning requirements, illustrating the supply constraints that protect incumbent property owners.

The Institutional Awakening

The landscape is rapidly changing as institutional capital recognizes the sector's advantages. International capital that previously targeted core industrial real estate has recently entered the IOS market, as GFH Partners recently launched and closed a $300 million fund focused on industrial and transportation logistics.

Several factors are driving this institutional interest:

Superior Risk-Adjusted Returns: Rents have grown 20 percent to 40 percent since 2019 and were consistent throughout the COVID-19 pandemic and shutdowns. The sector's performance during economic uncertainty has validated its defensive characteristics.

Low Capital Requirements: Unlike the office sector, where tenants have tremendous optionality in their space and could pivot to remote work, these sites are required for businesses. The mission-critical nature of these properties ensures tenant retention.

Inflation Protection: With short-term leases and the ability to adjust rates frequently, operational real estate offers natural inflation hedging that long-term triple-net leases cannot match.

The Road Ahead

The operational real estate sector stands at an inflection point. As institutional capital continues to flow in and consolidation accelerates, the market is professionalizing rapidly. As the asset type continues to mature, opportunities for new strategies and entrants into the market will continue to evolve, and the historical informational asymmetry between participants will begin to dissipate.

For the broader commercial real estate industry, operational properties offer lessons in resilience and adaptation. While office and retail struggle with structural challenges, these working assets demonstrate the enduring value of real estate that serves essential business functions.

The next decade will likely see continued consolidation, technological advancement, and institutional acceptance of operational real estate. Properties once considered alternative investments are becoming core holdings. Family businesses are transforming into institutional-grade assets. And a sector that operated in the shadows is stepping into the spotlight.

As one industry executive observed about the car wash sector, though the sentiment applies broadly: "The fast food industry took about 50 years to consolidate, but you know today who the top players are. That has not been decided in the car wash market, but it's just about to start."

The same could be said for the entire operational real estate sector. The consolidation race is just beginning, the institutional capital is flowing, and the $300 billion asset class that nobody talks about is quietly reshaping American commercial real estate.

For investors, operators, and industry observers, the message is clear: operational real estate is no longer an alternative investment—it's becoming the alternative to traditional real estate investment. In an era of remote work, e-commerce disruption, and changing consumer preferences, these properties offer something increasingly rare in commercial real estate: stable, growing demand for physical space that cannot be digitized, outsourced, or eliminated.

The overlooked has become essential. The alternative has become mainstream. And the $300 billion secret is finally being told.