Small Bay Industrial Outpacing Big Box
Small bay industrial properties (5,000–50,000 sq ft) are now experiencing faster rent growth than their big box counterparts in 2026. The trend is fueled by high demand from e-commerce startups and last-mile distributors, combined with a much lower supply of new small bay product. Analysts note smaller tenants are also stickier, as they are less likely to relocate due to high moving costs.
A decade-long focus on large-format distribution centers has created a structural undersupply of small bay properties. While big-box markets like the Inland Empire are grappling with oversupply from the 2021-2023 construction boom, the small bay segment's inventory grew by only 3% over the past ten years. Nationally, the vacancy rate for industrial properties under 50,000 square feet sits at 4.2%, roughly half the 7.5% rate for the overall market. In contrast, the overall industrial vacancy rate in the Inland Empire reached 8.1% in late 2025, while Los Angeles held firmer at 4.6%. This supply-demand imbalance has fueled significant rent growth, with average rents for light industrial spaces climbing over 40% since 2020. In Southern California, this translates to market-leading rates in Los Angeles County, averaging nearly $19.47 per square foot annually, compared to around $13.25 in the more supply-rich Inland Empire. The demand is largely insulated from single-tenant volatility, originating from a diverse base of local service businesses, light manufacturers, and the critical last-mile logistics sector. E-commerce, which requires up to three times the logistics space of traditional retail, is a primary catalyst, with global online sales expected to exceed $8 trillion by 2028. Institutional investors are now rotating out of the oversupplied big-box sector and into supply-constrained small bay assets. The investment volume for smaller properties grew from approximately 20% of the industrial market in 2021 to 35% by 2025, with transactions for buildings under 150,000 sq ft accounting for 62% of all industrial deals in 2024. Shorter lease terms of one to five years allow owners to adjust to market rates more frequently, minimizing loss-to-lease risk compared to long-term big-box commitments. This flexibility, combined with the high costs that deter small tenants from relocating, creates a more resilient income stream.
