Latest BKM report shows why small-bay industrial remains the strongest bet in today's market

Small-bay industrial continues to stand out as one of the most resilient and compelling segments in today’s industrial real estate market. While broader industrial fundamentals are normalizing after several volatile years, demand for smaller-format space remains strong, driven by local and regional users that need flexibility, proximity, and efficiency.

In fact, the majority of leasing activity today is concentrated in spaces under 50,000 SF, pushing occupancy higher and supporting steady rent growth across well-located small-bay assets.

Limited new construction is a major tailwind. With less than 1% of small-bay inventory under development nationally, supply remains tight — especially compared to big-box product. That imbalance has translated into stronger absorption, wider leasing spreads, and lower vacancy rates for smaller buildings, particularly in infill markets.

Capital markets are taking notice. Investors are increasingly favoring sub-100,000-SF properties, where pricing has appreciated faster and liquidity has improved meaningfully. Smaller deal sizes are driving the bulk of transaction volume, reflecting growing confidence in the sector’s ability to deliver durable income and long-term value.

On the demand side, secular trends are reinforcing the outlook. E-commerce, third-party logistics, AI-driven supply chains, and a resurgence in domestic manufacturing are all fueling demand for infill and last-mile space. In markets like Los Angeles, where port activity is rising and construction has effectively paused, small-bay fundamentals remain especially tight — underscoring why this segment continues to outperform.

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