Good Things Come in Small Packages – August 24, 2026
Multi-tenant light industrial outperforms its big-box equivalents in occupancy, leasing velocity and pricing
High-profile properties and enormous leases tend to grab the headlines in the industrial sector as they do in office. In both sectors, though, the real foundation is smaller transactions. And in the case of industrial at any rate, the real growth this year has been in properties whose square footage is measured in four or five figures rather than six or seven.
That’s an overarching theme of a newly released quarterly report from BKM Capital Partners, which specializes in light industrial. While the report notes that industrial leasing overall marked its best quarter in three years, with second-quarter 2026 volume up 49% year-over-year and Q2 net absorption nearly doubling that of Q1, drilling down into the sector’s performance reveals who the star of the show is.
“Though big-box industrial is making a comeback after a multi-quarter decline, multi-tenant light industrial remains the standout performer across nearly every category,” according to BKM. “Vacancy for these assets still hovers close to historic lows, while leasing activity remains heavily concentrated in smaller spaces. As the supply-demand imbalance continues to widen for multi-tenant light industrial, the segment is poised for continued success even in today’s challenging economic environment.”
BKM notes that demand for multi-tenant light industrial assets has consistently outperformed that of larger-format properties. On average, 70-80% of all leases transacted are under 50,000 square feet, despite the size segment comprising only 31% of all industrial inventory.
Among the most compelling aspects of small-bay investment is the lack of new supply and highly constrained construction pipeline, the report states. Just 7% of new industrial supply is under 50,000 square feet, limiting supply risk and contributing to low vacancy figures. (There’s also a flip side to that status quo of limited development, which we’ll get to.)
The starkest contrast between small-bay and big-box industrial is the vacancy rate. Buildings under 50,000 square feet average 4% vacancy rates—47% lower than the average across all other size segments—while larger facilities see vacancies averaging about 8%.
Even as the broader industrial sector has experienced significant sales growth over the past year, multi-tenant light industrial assets have outperformed, according to BKM. Industrial sales volume grew 37% Y-O-Y in Q2 2026, marking the second-best H1 on record. Deals under $100 million have accounted for 70% of all industrial investment sales over the past four quarters.
“Perhaps the most notable distinction in capital markets is the pricing premium commanded by smaller industrial assets,” the report states. Buildings smaller than 50,000 square feet trade at an average of $147 per square foot, a 36% premium over larger-format properties, which average $108 per square foot. “This premium reflects the sector’s resilient occupancy, limited new supply and durable tenant demand.”
The other side of the coin as far as smaller properties are concerned is their ability to compete with newer product, when new supply of light industrial isn’t being added at the same rate. Yet BKM sees an opportunity here for upgrades.
“Performance is further enhanced by assets that meet the needs of today’s tenant base: modern, efficient facilities that provide sufficient power, efficient loading, and high-quality finishes and amenities,” the report states. “Because new small-bay development is extremely limited, existing buildings are aging and require significant upgrades to accommodate evolving tenant expectations.
“Operators who deliberately underwrite significant capex into their deals will not only attract greater market demand but will also enhance NOI and overall property-level returns, further strengthening performance in an already high-performing sector.”