The industrial real estate sector has been on a wild ride in recent years. As we continue on in 2025, one segment stands out from the rest: micro-flex or small-bay industrial space. These are the smaller industrial units (typically under 50,000 sq. ft., and often much smaller) that cater to local businesses and flexible uses. While giant distribution centers grabbed headlines during the e-commerce boom, it’s the humble small-bay warehouses that are booming in 2025. Vacancies in this segment are at record lows and demand is sky-high – even as some larger warehouses see vacancies creeping up. What’s going on? And why are small-bay industrial properties so hot? Let’s dive into the data-driven insights shaping this trend.

Demand Soars and Vacancies Hit Record Lows for Small-Bay Industrial

Unprecedented occupancy levels

Nationally, small-bay industrial space is tighter than ever. The vacancy rate for U.S. industrial properties smaller than 50,000 sq. ft. sits around 3.4% – an astonishingly low number. (For context, that’s about on par with the apartment vacancy in New York City, a market notorious for housing shortages). In other words, virtually everything is getting leased.

By contrast, overall U.S. industrial vacancy (all sizes) has been rising (and is roughly in the 7-8% range as of early 2025), thanks largely to a wave of big-box warehouse construction. This stark difference underscores just how in-demand small-bay spaces are relative to their larger counterparts.

Small spaces, big share of leasing

In market after market, smaller industrial units are accounting for a disproportionate share of leasing activity. For example, in Charlotte nearly 79% of all industrial square footage absorbed in Q1 2024 came from leases below 100,000 sq. ft., continuing a trend of robust leasing for small-bay product. At the same time, multiple brand-new 400,000+ sq. ft. big-box facilities in that market sat completely vacant. The story is similar in many cities – the smaller footprints are getting snapped up, while some mega-warehouses struggle to find tenants.

Ultra-tight local markets

Some regions illustrate just how extreme the demand vs. supply imbalance has become for small-bay spaces. In Las Vegas, for instance, the vacancy rate for industrial spaces under 30,000 sq. ft. is a scant 2.7%, roughly half the 5% vacancy rate for the broader market. Essentially, small bays in Vegas are fully occupied – a new project delivered in 2022 reached full occupancy within one month of delivery.

Even markets known for huge industrial growth like Dallas-Fort Worth show a similar pattern: DFW’s overall industrial vacancy is around 9-10% after a construction surge, yet the availability rate for sub-50k sq. ft. industrial space in DFW is only about 6.1%, down from 8.7% a decade ago.

In short, if you build small-bay product in the right location, it’s likely to lease (or sell) quickly.

It’s clear that demand for micro-flex space is outstripping supply. But who is driving this demand, and why now?

Who’s Driving the Micro-Flex Boom?

The short answer: lots of people, for lots of reasons. Small-bay industrial properties serve a broad range of users, and in 2025 several economic forces have converged to amplify demand from these groups:

  • Local Trades and Small Businesses: Think contractors, plumbers, electricians, auto mechanics, HVAC companies, and artisans. These “blue-collar” businesses have always needed modest warehouse bays for shops and storage. As the economy and population grow, so does demand for their services – and thus for their workspace.
    • Many such businesses have been expanding out of home garages or aging facilities and into modern small-bay units. The housing renovation and construction boom, for instance, has led many contractors to seek out their own warehouse bay to operate from. Small-bay warehouses provide an essential community service by housing these local businesses – one investor aptly called it the “mandatory nature” of small-bay space in every local economy.
  • E-commerce and Last-Mile Delivery: Online retail isn’t just about million-square-foot fulfillment centers – it also relies on last-mile hubs and local distribution nodes. Many small-bay units near population centers are being used for same-day or next-day delivery operations and local inventory staging. In fact, e-commerce growth is a key driver: U.S. online sales rose about 8.1% last year (far outpacing the ~2.8% growth of traditional retail), which translates to an estimated need for 1.2 million sq. ft. of warehouse space per $1B in e-commerce sales.
    • Much of that need is for infill locations – smaller warehouses closer to customers. As a result, delivery firms and 3PL (third-party logistics) providers are increasingly snapping up 5,000-20,000 sq. ft. bays in urban fringe areas to meet same-day delivery promises. The strategic proximity of small-bay facilities to consumers gives them an edge in the logistics chain.
  • Light Manufacturing and Startups: The reshoring trend and growth in small-scale manufacturing have also boosted demand. U.S. manufacturing capital spending is nearly double pre-pandemic levels (about $124.4 billion, well above historic norms). A lot of this investment is in light manufacturing, assembly, R&D, and other activities that often prefer a smaller industrial footprint rather than a massive plant.
    • Small-bay units – especially those in the 5,000-20,000 sq. ft. range – are ideal for these purposes, providing just enough space for assembly lines or prototype labs along with a small office. Companies involved in everything from electronics assembly to craft brewing to research labs have been absorbing micro-flex spaces for their operations.
  • Entrepreneurs, Creators and Hobbyists: Another slice of demand comes from individuals or small teams who need flex space for non-traditional uses. Think specialty e-commerce sellers warehousing their inventory, custom car builders, furniture makers, even fitness or recreation uses (like crossfit gyms or indoor sports training in industrial bays).
    • Over the past decade, uses like gyms and recreational facilities have increasingly taken whatever minimal small industrial space is available. Personal Warehouse’s own clients include everyone from hobbyist car collectors to start-up e-commerce brands – all seeking affordable space to work, store, or play. This “bottom-up” demand from everyday entrepreneurs adds a steady stream of new tenants into the small-bay pool.
  • Investors & Owner-Users: Lastly, investors themselves are helping drive demand – both indirectly and directly. Indirectly, investor appetite for owning small-bay industrial properties has surged (more on that later), which leads to more active marketing and leasing of these spaces. And directly, some investors are actually the end-users: small business owners who choose to buy a unit (via concepts like Personal Warehouse) as an investment and business home base.
    • The ability to own one’s industrial condo unit at a reasonable price point – rather than paying rent indefinitely – is attracting many entrepreneurs. It’s a way to build equity while housing your business. This trend is especially notable in markets like Colorado and Texas where business owners are purchasing micro-flex units as long-term real estate investments in themselves.

In short, demand is coming from all directions – and it’s not just a fad. These drivers are structural (e.g. growth in small businesses, e-commerce logistics needs, etc.), suggesting the boom in small-bay interest is built on a solid foundation. However, surging demand alone doesn’t create the full “boom” story – the other side is constrained supply. And that is a huge factor in today’s market.

Chronic Undersupply and Limited New Construction for Small-Bay Industrial

It’s often said that the cure for high demand is more supply – yet in the small-bay industrial world, new supply has been painfully slow to materialize. Several factors have led to a chronic undersupply of modern small industrial space:

  • Developers focus on big projects. Building a 20,000 sq. ft. multi-tenant industrial project isn’t all that different (in time, complexity, and often land required) from building a 200,000 sq. ft. warehouse. Given the choice, most developers and their investors have historically preferred the larger projects – the payout can be bigger for roughly the same effort. This has left the small-bay segment largely ignored in many new development pipelines. As one industry veteran put it, developers often “opt to focus on larger projects, viewing them as a more efficient way to deploy capital”. The result: very few purpose-built small-bay industrial parks are coming out of the ground relative to those giant distribution centers.
  • Land and zoning constraints. The best locations for small-bay warehouses are infill sites near population centers – but those areas often have scarce land and more zoning hurdles. Many cities have actually lost small industrial parcels over time as older warehouses got torn down and replaced with apartments, offices, or large format warehouses.
    • In the last decade, more than 115 million sq. ft. of U.S. industrial space less than 50k sq. ft. was demolished (often for redevelopment). This far outpaces the meager new construction of small-bay space. In fact, when you tally it up, the total U.S. inventory of small industrial properties grew only about 3% in the last 10 years. In the same period, the industries that heavily use these spaces (construction trades, auto repair, wholesale, etc.) grew their employment by 20%. This mismatch between local industrial demand and available space has been building for years.
  • New construction is a drop in the bucket. As of early 2025, only about 23 million sq. ft. of small-bay industrial space is under construction across the entire United States. To put that in perspective, 23 million sq. ft. is less than 0.3% of existing industrial stock. It’s a rounding error.
    • For comparison, during the past few years, more than 400 million sq. ft. of (mostly large) industrial space was being built annually across the country. Developers simply are not adding enough new small units to move the needle. Even in 2024’s construction pipeline, the vast majority of product was large-scale logistics facilities, keeping supply of small and mid-sized bays tight despite persistent demand ([PDF] canada industrial | q1 2025 – cbre). In other words, small-bay is not overbuilding – not even close.
  • High costs and interest rates. The economics of building small-bay have been tough until recently. Construction costs and land prices have climbed so high that many developers couldn’t make a profit on small 1,000-5,000 sq. ft. bays if they sold or rented them at market rates. Only now, with rents rising (and some creative approaches like industrial condo models), do new projects pencil out. Even so, rising interest rates have made financing new development more expensive, which has further slowed speculative projects in the small-bay category. A few more projects are in the pipeline now as developers gain confidence that rising rents can justify the costs, but it’s going to take time for these to deliver. And whatever is coming in 2025 is nowhere near enough to satisfy demand.

The bottom line is that supply has been lagging far behind demand for years, creating a structural shortage. That’s why even a slight dip in demand wouldn’t upset the market much – there’s a huge cushion of unmet need. Analysts note that even in a worst-case economic scenario, small-bay vacancy would likely remain below its historical average because there’s simply not enough new supply to give tenants options. In fact, many high-growth metros (Nashville, South Florida, etc.) report acute shortages of small industrial space, especially where population and housing booms are fueling more local service businesses.

Interestingly, a few markets are trying to buck the trend by building more small-bay product – Texas is a prime example. Texas’s pro-growth policies and ample land have enabled developers to build small-bay industrial at a higher rate than the national average. In Austin and Houston, the stock of industrial properties under 50k sq. ft. has grown at more than 4x the U.S. growth rate in the past five years. Even Dallas-Fort Worth and San Antonio have expanded their small-bay inventories at about double the national rate. This has led to slightly higher availability in those markets – they rank among the less tight small-bay markets simply because they finally built some new product. But “less tight” is relative: as mentioned, DFW small-space vacancy (~6%) is still well below historical levels, and Houston’s small-bay segment is expected to continue seeing rent growth due to its still-limited supply pipeline.

Texas showed that building more helps, but it hasn’t created a glut by any means.

Rent Growth and Investment Trends in Small-Bay Industrial

With demand red-hot and supply scarce, it’s no surprise that rents for small industrial units have been climbing fast. In many markets, landlords of small-bay spaces have seen stronger rent growth than any other property type in their portfolio. Some data points and trends:

  • Rents at historic highs. A few years ago, a typical small industrial bay might have leased for around $5–6 per square foot (triple-net) in many markets. Those days are gone. Due to the frenzy of demand, rents pushed into the high single digits pre-pandemic and then kept rising. Now, it’s common to see $12–$15 per sq. ft. (NNN) rates for small, high-quality industrial units in desirable locations. That’s roughly double the rent of a decade ago. Even secondary markets are seeing figures that would have seemed crazy a few years back. For instance, the average asking lease rate in Colorado Springs hit $11 per sq. ft. in 2024 – and that’s a market with plenty of land – reflecting how broad-based the rent boom has been.
  • Outpacing larger facilities. Importantly, rent growth for small-bay has outpaced that of those big-box warehouses. In fact, CompStak projects that small-bay industrial rent growth will well outpace bulk industrial in 2025.
    • We’re already seeing landlords of multi-tenant industrial properties push rents aggressively on renewals and new leases, because they know tenants have few alternatives. By contrast, some owners of large logistics buildings (100k+ sq. ft.) are having to offer rent discounts or concessions in certain markets just to fill space. Essentially, pricing power has shifted strongly in favor of small-bay landlords. One reason is lease structure – unlike a 10-year lease on a big distribution center, small-bay leases might be 1-5 years. That allows landlords to adjust rents frequently to align with market conditions. As a recent industry report noted, “small-bay assets typically operate on shorter lease terms, enabling landlords to adjust rents more frequently” to capitalize on rising demand. This flexibility has translated into faster rent increases in an upswing. (Great for owners – a bit tough for tenants!)
  • Hitting the affordability ceiling? There is a point, however, where tenants start to push back. In some of the most expensive cities (e.g. coastal California markets), small-bay rents have doubled over the last decade and reached levels that test what small businesses can afford. CoStar noted that by early 2023 the rate of increase had finally slowed in ultra-hot markets like Los Angeles, suggesting we might be nearing an affordability ceiling. Still, in most regions of the country, demand is such that even if rent growth moderates, nobody is expecting rents to fall for small industrial. At worst, they level off at a high plateau; at best, they continue climbing (albeit at a more measured pace).
    • For 2025, forecasts call for overall industrial rent growth to dip to around 2% (the slowest since 2012), but that average masks a two-sided story – softening rents for big logistics vs. continued strong increases for small-flex space. Many small-bay users are willing to pay a premium for the right location and size that suits their needs.
  • Investors flock to small-bay. The investment community has definitely taken notice of the favorable fundamentals in small-bay industrial. These properties used to trade at higher cap rates (lower prices) relative to big single-tenant warehouses, partly due to management intensity and perceived risk of multiple small tenants. However, that valuation gap has been closing. Over the past few quarters, pricing for multi-tenant industrial has become very competitive, driven by investors eager to get into this resilient asset class. According to Newmark, small-bay properties historically carried cap rates 50-100 basis points higher than bulk distribution, but now that dynamic has reversed due to the supply-demand imbalances favoring small-bay.
    • In fact, sales volume for small-bay industrial in early 2024 was 32% above pre-pandemic averages, whereas sales of huge warehouse assets were down ~30% from their norm. Investors see the diverse tenant mix and high occupancy of small-bay portfolios as a strength – these assets can provide steady cash flow and upside on rents as leases roll. Moreover, many small-bay facilities are older or need modest improvements, which presents value-add opportunities (renovating units, adding HVAC or mezzanines, etc., to bump rents).
    • With few new competitors being built, investing in an existing well-located small-bay property can be a recipe for outsized returns, as one industry article pointed out.

All told, the money is flowing into this segment, and for good reason. From an investment standpoint, small-bay industrial offers a combination of stability (high occupancy, essential local tenants) and growth (rent upside, high demand) that’s hard to find elsewhere in real estate right now. It’s not without challenges – managing dozens of small tenants is a different animal than a single tenant in a big box, and finding sites for new small-bay development can be tricky – but investors are largely bullish on the sector’s prospects.

Before we wrap up, let’s zero in on some regional trends that highlight how this small-bay boom is playing out in specific markets, especially where Personal Warehouse operates.

Regional Highlights: Booming Micro-Flex in Key Markets

Our Personal Warehouse team has first-hand experience in several states – Colorado, Georgia, Texas, Nevada – and each region tells a part of the story. Here’s a quick tour of how small-bay industrial is faring in these markets:

  • Colorado (Denver Metro): Denver’s industrial market remains very strong. 2024 saw over 4.3 million sq. ft. of net absorption in Denver – a healthy chunk of it in smaller industrial leases. Vacancy rates have risen slightly with new construction, but primarily in the big-box segment. Importantly, average asking rents are at record highs and still climbing for small-bay units, whereas rents have flattened for the largest availabilities. That tells us local businesses are eagerly absorbing new micro-flex spaces and pushing rents upward. We’ve seen this on the ground as well: small business owners in Denver are buying and leasing Personal Warehouse units, taking advantage of the opportunity to own their space in a tight market. Even secondary Colorado markets (Colorado Springs, etc.) are seeing historically low vacancies and steady rent growth in the small-bay category, as local companies expand.
  • Georgia (Atlanta Area): Atlanta is a tale of two markets. The overall Atlanta industrial vacancy hit about 10% in late 2024 – the highest in five years – due largely to a flood of new mega-warehouses coming online. But the small side of the market remains extremely tight. Industrial buildings in the 20k–50k sq. ft. range have only ~4.1% vacancy – the lowest of any size segment. In fact, buildings under 50k sq. ft. accounted for 87% of all lease deals signed in Atlanta in Q1 2024. Essentially, big box vacancies may be up in Atlanta, but if you need a <10,000 sq. ft. space, good luck – they’re in short supply. This dynamic is driving many Atlanta small business owners to consider buying their own small warehouse unit when they can, just to secure a foothold. We’re active in the Atlanta metro (for example, our Personal Warehouse developments in Buford and Alpharetta, GA) and continue to see strong demand from businesses that want to lock in space amid the shortage.
  • Texas (Dallas, Houston and beyond): Texas is an industrial powerhouse and has been adding supply rapidly, yet demand still keeps up. Dallas–Fort Worth, for example, had roughly a 10% overall vacancy in early 2025 (one of the higher in the nation, as massive distribution centers delivered). But even in DFW, the small-bay availability is only ~6%, down from almost 9% a decade ago. That improvement over time shows how demand has steadily absorbed the new small product that has been built.
    • Houston is another interesting case – it hasn’t overbuilt small-bay at all, and with its booming population and port-related growth, it’s poised for continued rent climbs in the sub-50k SF segment. Builders in Texas have been a bit more willing to create industrial parks with 5,000-20,000 sq. ft. bays (often as for-sale units or business condos), which is great. Even so, in hot spots like Austin, the vacancy for quality small units is minimal (Austin’s overall industrial vacancy was under 5% in 2024). Texas has a “build it and they will come” ethos – and for small-bay, that has absolutely been true. Every new small-bay development we’ve seen in Texas – from North Dallas down to San Antonio – tends to sell out or lease up quickly. The combination of rapid business growth and pro-development mindset makes Texas a key market for the micro-flex model.
  • Nevada (Las Vegas Area): As noted earlier, Las Vegas is extremely tight on small industrial space – just 2.7% vacancy for units under 30k sq. ft. The Vegas industrial market is benefiting from substantial population growth and economic diversification. Small bays around Las Vegas serve everything from construction firms (keeping up with all the new housing) to entertainment industry vendors and e-commerce distributors. Despite a building boom in warehouses around Vegas, virtually none of the new supply is small-bay, which is why we see a “significant shortage” of small industrial space in that region. Personal Warehouse opened a new micro-flex park in Henderson, NV and it was no surprise that units were snatched up on the double.
    • When space is at such a premium, buyers and tenants move quickly. We expect more developers will start adding small-bay projects around Nevada in coming years, but for now it remains one of the most undersupplied segments there.

These regional snapshots mirror the national trend: small-bay industrial is tight almost everywhere, even in markets that have plenty of land to build (like Texas) or plenty of new construction (like Atlanta). Local nuances aside, the broad theme is consistent – if you need a small industrial space for your business, you’re facing stiff competition, and if you own one, you’re in a good position.

Outlook: Where the Small-Bay Industrial Market Is Headed

Looking ahead through 2025 and beyond, the consensus among industry experts is that the small-bay industrial momentum isn’t slowing much. Here are a few forward-looking insights based on current projections:

  • Continued low vacancies. Don’t expect a wave of empty small-bay warehouses anytime soon. Even if the economy softens, most small-bay tenants (think local service providers) aren’t going anywhere – and very little new space is coming to market to give them alternatives. Analysts predict that the shortage of small industrial space will persist throughout 2025 regardless of broader economic performance. In fact, one analysis found that even in a hypothetical scenario where demand drops as sharply as it did in 2009, the small-bay vacancy rate would still stay below its pre-pandemic 15-year average (~5.4%). That’s a testament to how undersupplied this segment is. Barring a truly unforeseen shock, we’re likely to see national small-bay vacancy hover in the 3-5% range, which effectively means “landlord’s market” conditions continue.
  • Modest supply uptick (but not enough). There are signs that developers are eyeing the small-bay opportunity a bit more, given the strong rents. We’re seeing more projects in planning stages, and some investor-developers (including us at Personal Warehouse!) actively building micro-flex communities. This means 2025-2026 might bring a slight uptick in deliveries of new small-bay inventory. However, relative to demand, it will still be a drop in the bucket. Remember, only 0.3% of total industrial stock is under construction right now in the small bay space. Even if that doubles, it’s still extremely low.
    • So while new projects will help at the margins and give a few more businesses a home, they won’t flood the market or drive vacancies up in any significant way. In fact, many new small-bay developments are largely pre-leased or sold out before they even finish construction, given the pent-up demand. This trend of “build it and they’re already waiting to take it” is likely to continue in high-demand regions.
  • Rent growth normalization. On the rent front, we could see some moderation – but mainly for the largest industrial facilities. For the small-bay segment, rents are expected to keep rising, though perhaps at a more sustainable pace than the double-digit annual growth of the past couple years. Landlords might not have quite the same leverage to impose huge hikes if the overall economy is lukewarm, but they’ll still be in the driver’s seat due to lack of competition.
    • Markets that saw the steepest rent increases (e.g. parts of California) might plateau as tenants hit affordability limits, but many Sunbelt and Midwest markets still have headroom for rents to climb. In short, small-bay rent growth should remain positive in 2025, outpacing inflation and outpacing rent growth in the big-box segment. Good news for owners and investors; challenging for tenants planning their budgets.
  • Investor appetite stays strong. We anticipate that investors will continue to view small-bay industrial as a desirable asset class. The resilient performance during the pandemic (when many small-bay tenants actually thrived or at least remained stable) proved the segment’s durability. Now, with concerns about interest rates and a possible economic slowdown, the diversification and high occupancy of multi-tenant industrial can look especially attractive – a defensive play with upside.
    • Cap rates for premium small-bay portfolios may even compress further if interest rates stabilize, as more capital chases limited product. We also foresee more institutional investors forming partnerships or platforms to acquire small-bay portfolios, whereas historically it was dominated by local owners. This institutional interest (examples include REITs and private equity funds focusing on “last mile” assets) will keep values supported. For individual investors, opportunities like purchasing a micro-flex unit through Personal Warehouse remain a compelling entry into commercial real estate, precisely because the underlying market fundamentals are so favorable.

To sum up the outlook: the small-bay industrial boom has legs. The same forces that made it boom – diverse demand, limited supply – are still in play and not easily or quickly changed. We’ll be watching to see if any headwinds emerge (for instance, if high interest rates persist, could that dampen some small business expansions or make developers even more hesitant? Possibly on the margins). But in our view, the trajectory for 2025 is that small-bay industrial will continue to outperform the broader industrial sector in occupancy and rent growth, just as it did in 2024. It remains, in a word, strong.

For those of us involved in this market daily, these trends aren’t just abstract numbers – they’re impacting real business decisions. So what does this mean if you are considering buying or leasing a micro-flex unit?

If you’re a small business owner in need of space, it means you should be proactive. Tight vacancy and rising rents indicate that securing a space sooner rather than later is wise – it’s a landlord’s market, and good spaces don’t stay available for long. The silver lining is that once you have your own space, you benefit from the stability (and if you purchase, the equity growth) in this high-demand market.

If you’re an investor or prospective investor, the data tells a pretty compelling story: small-bay industrial can be a solid addition to your portfolio. It offers a combination of income and growth, with a tenant base that is broad (reducing reliance on any single sector). The market fundamentals suggest that well-located micro-flex properties will remain in demand, which supports long-term value. Of course, as with any investment, doing your due diligence is key – looking at local market conditions, the quality of the property, and the tenant mix. But broadly, the sector’s trendline is positive.

Finally, if you’re simply an observer or enthusiast of commercial real estate trends (like many of us at Personal Warehouse!), the rise of small-bay industrial is a fascinating case study. It underscores how changes in the economy (e-commerce, entrepreneurship, etc.) and in development patterns have created an “overnight success” that was years in the making (or in our case, 25 years in the making).

Small-bay was once the overlooked stepchild of industrial real estate – now it’s taking center stage.

As the CEO of Personal Warehouse, I find it incredibly exciting to navigate this booming micro-flex market. We’ve believed in the potential of small-bay industrial for a long time, and it’s rewarding to see the broader industry catching on to its value. More importantly, it’s rewarding to see our owners and clients benefit from these trends – whether it’s an investor enjoying steady rental income or a business owner thriving because they finally have the right space for their operations (while building equity in the process).

If you’ve been following these market trends and are curious about how to take part in the small-bay industrial space – either by owning your own Personal Warehouse unit or finding the perfect location for your business – we’re here to help. Feel free to reach out to us at Personal Warehouse for a conversation. We love talking about this stuff, and we’d be happy to discuss how these trends can align with your goals. After all, the numbers tell a clear story: small-bay industrial is booming, and it’s an exciting time to be involved in this dynamic segment of real estate.