Small Bay Industrial Properties Face 11-12% Bad Debt as E-Commerce Tenants Struggle

Written by:

Rudi Davis

Date:

15 Jan 2026

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Small-bay industrial properties across Florida are showing elevated bad-debt levels, with some rent rolls reporting non-payment rates of 11-12%. According to Daniel Levin, Senior Associate at CorePoint, the highest concentrations of bad debt are in properties with 15,000 to 35,000 square feet, where e-commerce and wholesale tenants account for a significant share of the occupancy. The spike in non-payment is now affecting property valuations and buyer interest.

“I must have a dozen or so rent rolls from the last week where we see bad debt at a higher percentage than you would anticipate,” Levin says. “In some small bay properties, we’re seeing it go as high as 11, 12%.”

E-Commerce Tenants Drive Bad Debt

Levin attributes most of the bad debt to e-commerce tenants, many of whom expanded rapidly during the pandemic-driven surge in online shopping. These businesses are now under pressure from shifting consumer demand and rising costs, including tariffs on imported goods.

“Especially surrounding e-commerce businesses as of late, those guys are the ones who are getting hit the hardest,” Levin says. He points to small bay properties in the Miami area as having the most pronounced problems, with e-commerce tenants struggling to meet rent obligations.

For some landlords, tenant defaults can create opportunities to re-lease space at higher rates if existing leases are below market. However, this benefit depends on local market strength. In weaker markets, high turnover and persistent vacancies undermine property income and make it difficult to justify current values.

Levin explains, “It’s not necessarily such a bad thing, because people hop out of their leases and you can pop the rents depending on the market—it will depend if the vacancy is a good thing or not.”

Impact on Acquisitions and Underwriting

Rising bad debt is forcing buyers to adjust their underwriting for small bay properties. When rent rolls show 11-12% bad debt, buyers must discount projected cash flows, which lowers valuations. The key question is whether the bad debt reflects temporary tenant distress or deeper, structural issues with the property or its location.

Levin says sophisticated buyers are seeking opportunities in which bad debt arises from below-market rents, allowing them to re-lease the space at higher rates. But distinguishing these cases from those with long-term tenant weakness is challenging. In markets where demand is soft, high bad debt, combined with tenant turnover, can create a cycle of vacancy and declining rents.

Buyers are now scrutinizing rent rolls to determine whether bad debt signals a short-term leasing opportunity or broader instability in the tenant base. Properties that cannot quickly backfill vacant space at higher rents face steeper discounts and longer marketing times.

Tariffs Add Pressure for E-Commerce and Wholesale Tenants

Although Levin describes the overall impact of tariffs on industrial real estate as “more minimal,” he notes that the effects are concentrated among e-commerce and wholesale tenants, particularly those importing goods. These businesses, prominent in Miami’s small bay market, are experiencing cost increases that directly affect their ability to pay rent.

“We’re seeing it in smaller quantities, which has some sort of effect on it,” Levin says of tariff impacts. “Those smaller bay units, those properties where you’re seeing guys who are wholesaling and e-commerce, especially in the Miami area, those properties didn’t take so much of a hit, but we’re seeing random vacancies and a lot of bad debt on rent rolls.”

Miami’s exposure is heightened by its role as a trade hub for Latin America, with many tenants dependent on international imports. As tariffs and global trade dynamics shift, these tenants are more likely to fall behind on rent payments, increasing the risk for property owners.

Institutional vs. Private Owners: Different Risk Profiles

The impact of bad debt varies with the owner’s resources and portfolio size. Institutional investors, with diversified holdings and greater access to capital, are generally more willing to overlook short-term spikes in bad debt if they believe the property’s fundamentals remain strong.

“The institutional guys tend to get a little more aggressive in terms of purchase price,” Levin says. “We don’t necessarily see that from the institutions, but they’re still very heavily targeting properties despite rent roll issues.”

Smaller private owners and family offices, who often lack deep reserves and operate with less margin for error, are far more affected by high bad debt. For these owners, 11-12% non-payment can create immediate cash flow problems and limit their ability to cover expenses or pursue new acquisitions.

As a result, private buyers are more likely to avoid properties with significant bad debt or to demand substantial discounts to compensate for the risk and potential vacancy costs.

What This Reveals About Small Bay Fundamentals

The current concentration of bad debt in small bay industrial properties calls into question the long-held belief that this sector is recession-resistant. Traditionally, small bay assets have housed local service businesses—plumbers, HVAC contractors, electricians—that provide essential services and are less sensitive to economic cycles.

Levin’s recent observations, however, indicate that the tenant mix in small bay properties has changed. The rise of e-commerce and wholesale tenants has exposed these assets to broader economic trends and international trade policy. When these tenants falter, the resulting vacancies and bad debt can ripple through rent rolls and property values.

“You’ll still have these plumbing businesses who need a little 1,000, 5,000 square foot unit. You’ll have the HVACs and the electric guys, but how many others are still going to be there?” Levin asks, raising concerns about the long-term stability of demand.

The implication is clear: small bay properties with a high concentration of e-commerce or import-dependent tenants are now more vulnerable to economic shocks than previously assumed. Owners and buyers must now assess tenant mixes with greater scrutiny, focusing on the sustainability of rental income and the potential risks associated with non-essential or trade-sensitive uses.

As harmful debt levels remain elevated, the small bay sector faces a period of adjustment, with property values, leasing strategies, and acquisition criteria all under renewed pressure.