The Size Split

The read

In South Central Pennsylvania, developers kept delivering large, single-user warehouses while tenants signed smaller leases.

Of roughly 530 industrial leases completed across six markets over the past three years, 88% covered less than 100,000 square feet. Only 13 exceeded 500,000 square feet. By mid-2026, availability sat near 3.5% in buildings under 50,000 square feet and reached 13.7% above 500,000 square feet.[1]

That is the size split. The headline vacancy rate blends segments that don't share the same supply, tenants, or leasing cadence. Large logistics buildings are working through a post-pandemic development wave. Smaller facilities draw from contractors, light manufacturers, suppliers, service companies, and last-mile users, often in locations where replacement supply is hard to build.[2]

The split doesn't make small-bay safe. New small-bay projects have lease-up risk, small businesses are cautious, and older buildings can fail on access, power, parking, or deferred maintenance. The data supports a narrower acquisition case: existing, well-located multi-tenant industrial with suite sizes that match local demand and physical problems that can be priced.

Definition note: CoStar, CBRE, and local market reports use different size cutoffs for small-bay and shallow-bay industrial. This memo keeps each source's definition and does not combine different market samples into a single national index.

Development followed the large-user cycle

Developers responded to the post-pandemic logistics boom with buildings that could absorb capital and land at scale. Tenant demand moved before the pipeline did. The result now shows up as concentrated vacancy in recently completed, larger buildings.

Hancock County, outside Indianapolis, more than doubled its industrial inventory over five years and added five buildings larger than 1 million square feet. County vacancy peaked near 35% at the end of 2023. Logistics vacancy still sat near 24% in mid-2026, and annual logistics rent growth had fallen to negative 1.6%.[9]

Fort Myers shows the same lag at a smaller scale. The market delivered 1.1 million square feet over the trailing year against 271,000 square feet of net absorption. Buildings completed within the prior 18 months held 30% of all vacant space. Yet brokers reported that about 80% of active tenant requirements fell between 20,000 and 40,000 square feet.[6]

Tampa reinforces the distinction between activity and depth. The market leased roughly 12 million square feet over the past year, above its 2015 to 2019 annual average of 8.5 million square feet, even as vacancy rose and absorption turned negative. Deals below 50,000 square feet remained consistent while larger requirements became less common.[7]

Lakeland is the counterexample to a permanent big-box problem. A 1.2 million-square-foot PepsiCo lease and several other large commitments helped pull vacancy down from 9% to 7.4%. Four buildings still held about one-quarter of the market's available space. A few large leases can repair the metric, just as a few move-outs can damage it.[8]

Older infill space can compete on location

Small users don't always pay for the newest building. CoStar found that tenants leasing less than 25,000 square feet occupy buildings that average more than 35 years old. For many local operators, customer access, labor, and drive time carry more weight than clear height or a new facade.[4]

Age alone explains little. Dense infill locations and a thin replacement pipeline do the work. Small-bay properties built before the 1980s sit amid more than twice as much nearby commercial real estate as newer developments, according to CoStar. Availability in that older stock remained below 7%, compared with more than 13% in properties built since 2020.[3]

The supply base is also shrinking. More than 52 million square feet of small-bay industrial built before 2000 has been demolished since 2015, often for denser uses. In Southern California, construction of buildings under 100,000 square feet has fallen almost 80% from its peak to 1.6 million square feet, a decade-plus low. Orange County vacancy stood below 4% under 50,000 square feet and near 13% between 100,000 and 500,000 square feet.[3][5]

Fort Myers adds a useful warning. Pre-2000 inventory carried just 4% vacancy, but it still posted occupancy losses over the past year. Tight vacancy can reflect limited choices as much as rising demand. A low rate doesn't excuse weak loading, obsolete office buildout, poor circulation, or a rent roll that is already at its limit.[6]

Small-bay is exposed to small-business economics

The same tenant diversity that supports small-bay demand also brings shorter leases, more frequent rollover, and businesses with less room for cost shocks. The April 2026 NFIB survey put its Uncertainty Index at 88, well above the historical average of 68. Only 17% of owners planned a capital outlay over the next three to six months.[13]

That caution is visible in new product. Availability in small-bay properties under construction rose from below 40% before 2023 to more than 53% by June 2026. Newer small-bay inventory carried 2.7 years of available supply, while older infill stock remained tighter. Building smaller suites does not create an infill location.[3]

Occupancy cost has become part of the risk. Tampa industrial rents increased about 50% over five years, while operating expenses also rose. Tenants took longer to decide, and landlords offered more concessions. Owner-users accounted for about 20% of industrial sales over the past year, twice their share over the prior five years, as some businesses looked for control over future occupancy costs.[7]

Capital has moved faster than new supply

Large investors have started buying the existing stock that developers struggle to replace. In June, BKM Capital Partners and Kayne Anderson Real Estate acquired 51 industrial parks with 275 buildings for $1.8 billion. The 8.45 million-square-foot portfolio was about 90% leased, and most buildings measured less than 100,000 square feet. The planned work included roofs, HVAC, vacant-suite preparation, and selective office reduction.[10]

Centerbridge then led a $750 million investment in Merritt Properties, whose shallow-bay buildings often range from 20,000 to 50,000 square feet. In Seattle's Kent Valley, MCA Realty paid $20.7 million for three multi-tenant warehouses and planned suites from 4,000 to 40,000 square feet. The portfolio included buildings at 76% and 38% occupancy, so the investment case still depended on leasing and execution.[11][12]

Those transactions show capital interest, not guaranteed returns. More bidders can narrow the pricing advantage before they improve the buildings. Tampa recorded about $1.3 billion of industrial sales over the past year, almost twice its pre-pandemic annual average, even as operating data softened. Buyers still favored well-located properties with a defined mark-to-market, renovation, or redevelopment plan.[15]

How the thesis changes our screen

For Midwood, the data narrows the buy box. We want evidence that a property's suite sizes, location, and physical plan fit the local tenant base. A national small-bay statistic cannot supply that proof.

The acquisition case rests on local scarcity

The data supports a size-and-location thesis, not an industrial allocation. A 40,000-square-foot building in an infill corridor can face a different demand set from a 750,000-square-foot box at the edge of the same metro. The headline vacancy rate won't show that difference.

For Midwood, the target is existing multi-tenant industrial where local leases confirm small-suite depth, replacement supply is thin, and the physical plan can improve function without assuming a return to pandemic rent growth. A favorable segment can get a property through the first screen. Lease comps, tenant calls, and a costed scope still decide the deal.