Think Small – April 7, 2025
Let’s not beat around the bush: large warehouses generally take a more dramatic photo and single-tenant lease-ups make for catchier headlines, just on the basis of sheer size. However, office brokers—and landlords—would be the first to tell you that smaller transactions represent the meat and potatoes of their business, and BKM Capital Partners sees a similar dynamic at work in the industrial sector.
The institutional fund manager, which specializes in value-add light industrial properties, makes the point in a new white paper titled “Great Things Come in Small Packages: Opportunities Abound in Multi-Tenant Light Industrial Facilities.” The white paper illustrates its thesis from the get-go:
Even as the broader industrial sector faces challenges, small-bay assets continue to show robust metrics, driven by structural demand and limited supply. According to Cushman & Wakefield, 2024 industrial leasing activity (excluding renewals) totaled nearly 130 million square feet, with overall vacancy at 6.7%. With smaller leases accounting for a significant share of this activity, warehouses of less than 100,000 square feet ended last year with a 3.9% vacancy rate.
With that lower vacancy rate comes more transaction activity. Eighty-two percent of 2024 industrial leasing was in spaces of 50,000 square feet or less. The remainder was divided evenly between leases of 50,000 to 100,000 square feet and those that were larger than 100,000 square feet.
Size isn’t the only advantage small-bay properties enjoy. They also have the advantages of urban infill locations—imagine the zoning challenges of putting up a one-million-square-foot distribution center near a CBD—and a diversified tenant base. “These attributes make them uniquely suited to address the rising demand for last-mile logistics, flexible manufacturing, and research and development (R&D) spaces,” according to the white paper.
Among the key takeaways from the report are the following:
- Demand Outpacing Supply: Despite accounting for a majority of leasing activity, small-bay assets represent less than 2% of the current construction pipeline. Their scarcity is driving rent growth and investor interest.
- Resilience Amid Market Shifts: Although larger industrial buildings face rising vacancies, small-bay properties continue to benefit from structural demand drivers, including e-commerce expansion, reshoring of manufacturing, and proximity to urban centers.
- Tenant Diversity and Risk Mitigation: Small-bay properties serve a wide range of industries, including logistics, life sciences and retail. This makes them less vulnerable to sector-specific downturns. BKM’s own portfolio includes more than 2,000 tenants, with no single industry comprising more than 15% of total revenue.
- Strategic Lease Structures: With average weighted lease terms of just 2.53 years, BKM is able to capitalize on rent growth opportunities, achieving over 30% re-leasing spreads in recent quarters.
- Value-Add Opportunity in Aging Inventory: A significant portion of the small-bay market consists of older properties. Through targeted renovations and sustainability enhancements, BKM has unlocked NOI growth and capital appreciation across its portfolio.
“This report underscores what we’ve long believed at BKM—small-bay industrial is not just a niche sector; it’s a strategic cornerstone of modern logistics and light manufacturing,” said Brian Malliet, BKM’s founder, CEO and CIO. “The combination of location, flexibility, and tenant diversity makes these properties incredibly resilient and well-suited to today’s evolving industrial landscape.”