The industrial real estate sector is shifting from large-scale warehouses to small-bay industrial properties (2,000–10,000 sq ft), which are emerging as a resilient, high-performing asset class driven by structural demand and favorable fundamentals.
Key Market Fundamentals
- Vacancy: Small-bay vacancy at 4.2% vs. 7.4% for large-scale industrial.
- Rent Growth: Small-bay rents up >40% since 2020, far outpacing broader industrial growth.
- Tenant Stability: Shorter leases, high retention, and "sticky" tenants who expand/contract within parks.
- Operational Advantages: Lower maintenance, scalable portfolios, and diversification reduce risk.
Demand Drivers
- Reshoring & Local Logistics: Proximity to customers supports service trades, contractors, and regional distributors.
- Small Businesses: Over 36 million U.S. small businesses (nearly 50% of private-sector jobs) fuel consistent demand.
- Last-Mile & Urban Infill: Rising fulfillment costs push tenants toward efficient, right-sized spaces.
Hotspot Markets (U.S. & Canada)
| Region | Key Markets & Trends |
|---|
| Northeast | Lehigh Valley, Southern NH, NYC outer boroughs – micro-parks for local distribution |
| Mid-Atlantic | Eastern PA/Southern NJ: supply up only 1.7% since 2020; vacancy ~4.5% |
| Southeast | I-4 Corridor, Atlanta, Nashville (vacancy <3% ex-large buildings), Savannah |
| West | Phoenix East Valley, Reno, Boise, Salt Lake – cost-effective alternatives |
| Midwest | Grand Rapids, Columbus, Chicago suburbs – manufacturing resurgence |
| Canada | Metro Vancouver (only 4% industrial land, ultra-tight supply) |
Investment Momentum
- Q2 2025 Sales: Properties <150K sq ft = 62% of industrial transaction volume ($5.89B in $5–25M range).
- Pricing: Small-bay sale prices up 55% since Q3 2020 (avg. $104/psf in Eastern PA/NJ).
- Investor Profile: Strong local/regional buyer activity; off-market deals dominate to avoid bidding wars.
- Institutional Interest: Growing but still a local landlord’s game.
Strategic Outlook
- Scarcity is Structural: Zoning, land constraints, and high construction costs limit new supply.
- Risk Mitigation: Diversified tenant base and short leases hedge against volatility.
- Caution: Rising rents causing tenant pushback in overheated markets — credit diligence critical.
Conclusion
Small-bay industrial is no longer a niche — it’s the connective tissue of modern industrial real estate. With systemic supply constraints, secular demand trends, and superior risk-adjusted returns, it offers investors agility, durability, and alpha in an evolving cycle.
“The next decade won’t be about size. It will be about agility, adaptability, and execution.”
