Secondary markets absorb small-bay demand

Industrial real estate is splitting into two markets. One is the headline market — giant warehouses, automation-ready buildings, 500,000-square-foot leases. The other is the quieter one — small-bay and shallow-bay space used by local distributors, contractors, light manufacturers, and service businesses. Right now, that second market looks tighter than a lot of people expected, especially outside the biggest coastal hubs. (cbre.com) ### What counts as small-bay here? CBRE defines shallow-bay industrial as buildings under 50,000 square feet with 14- to 28-foot clear heights. Basically, these are the smaller, more flexible buildings that let a plumbing supplier, cabinet maker, regional parts distributor, or last-mile operator get close to customers without paying for a giant logistics box they do not need. (cb([cbre.com)# Why is this segment suddenly standing out? Because supply never really caught up. Over the last decade, developers mostly chased big-box warehouses. Small-bay construction stayed modest, so the existing stock got old and scarce. CBRE says shallow-bay vacancy fell below the overall industrial vacancy rate starting in 2017, and by early 2024 the gap had widened to 2.5 percentage(cbre.com) not a cyclical blip — it is a structural shortage. (cbre.com) ### Why do secondary markets matter so much? Because a lot of small-bay demand is local, not national. These tenants care about labor catchment, drive times, service radius, and rent more than port adjacency or a perfect interstate superhub. That makes secondary markets surprisingly durable when local population and business formation are healthy. Southwest Florida is a good examp(cbre.com) small-bay and flex space after a softer 2025. (colliers.com) ### But isn’t the national industrial market improving too? Yes — but the improvement is uneven. Cushman & Wakefield says U.S. industrial posted 40 million square feet of net absorption in Q1 2026, up 52% year over year, while vacancy dipped to 7.0% and completions fell to their lowest level since 2017. But a lot of that demand is still skewed toward newer product, including very large(colliers.com) logic. (cushmanwakefield.com) ### So what is different about the tenant base? Small-bay users are usually operating businesses first and real estate users second. They need functional space fast. They often sign for shorter terms, smaller footprints, and locations close to workers and customers. Big-box tenants, by contrast, make slower, higher-stakes decisions around automation, freight flows, and networ(cushmanwakefield.com) shallow-bay has been steady for a decade because the tenant base is durable and speculative development has been limited. (cbre.com) ### What does this mean for investors? It means “industrial” is too broad a label now. If you underwrite every warehouse the same way, you miss where the scarcity actually is. Cushman’s 2026 investor outlook says yield-focused buyers are still drawn to select Class B and limited Class C infill assets, especially where shorter lease terms create mark-to-market upside. That lines up(cbre.com)the tenant demand is local and sticky. (cushmanwakefield.com) ### What is the catch? The catch is that not every secondary market wins equally. Southwest Florida shows both sides of the story: Fort Myers captured most of the leasing momentum, while Naples saw vacancy pushed above 6.5% by move-outs and slower backfill. Small-bay strength is real, but it still depends on submarket-level labor access, affordability, and whether new deliveries are arriving in the right format. (colliers.com) ### Bottom line? The useful divide in industrial right now is not just primary versus secondary markets. It is bay size, tenant type, and local operating economics. Small-bay space has become the part of the market where limited new supply meets everyday business demand — and that is exactly why investors are paying closer attention. (cbre.com)