Small Bay, Big Returns

by | May 13, 2025 | Real Estate

Small Bay, Big Returns-"Small Bay Industrial Investment"


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Small Bay, Big Returns

Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce.

On today’s show we’re talking about Small Bay Industrial. This is a segment that offers incredible flexibility. They can often double as office spaces, gyms, last-mile inventory for eCommerce, or even man caves for exotic vehicle collections. Of course, there are also the traditional uses, such as for plumbers, electricians, landscaping companies, various automotive repair shops, and so on.

Over the past few years, we’ve seen a lot of Large Bay Industrial capacity added to the market. I think there’s been so much new supply added that in some markets there is an excess supply. For example, Amazon overbuilt by nearly 33 million square feet in 2022 alone. That’s just one supply chain.

While large logistics hubs and distribution centers have grabbed most of the attention in the industrial sector, the lesser-known multitenant Small Bay could be even more compelling. Despite the strong demand for Small Bay, many landlords find that subdividing large distribution centers to accommodate smaller industrial tenants is neither cost-effective nor practical from a design perspective. Reshoring which has certainly been amplified with the current trade war underway in the US, has created demand for small bay industrial. Manufacturing spending is nearly double the pre pandemic average, and small bay facilities are ideal for accommodating light manufacturing, small assembly, and even R&D.

The attractiveness of the space is related to the lower cost. In fact, pure commercial space is going to be much more expensive. Adaptability is the primary advantage. It enables the landlords to benefit from higher occupancy from reduced downtime and the capability to shift according to market demands. We’ve seen rents in many major cities rise over the last couple of years from about eight dollars per square foot on a triple net basis to over fourteen dollars per square foot triple net.

For investors, existing Small Bay properties offer the opportunity to achieve outsized performance. That’s because they’re often underutilized or they just need some modernization. When you’ve got strong potential for net operating income growth, you can expect significant capital appreciation.

One of the biggest constraints is that many cities are not allocating enough land that is zoned light industrial. And that’s a major factor contributing to the shortage of the product. Hence, anytime you have an excess of demand and a shortage of supply, that represents an investment opportunity. As you think about that, have an awesome rest of your day. Go make some great things happen. We’ll talk to you again tomorrow.

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