Why Small Bay Warehouses Are Thriving While Demand for Large Industrial Space Softens

Written by:

Rudi Davis

Date:

14 Mar 2026

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The industrial real estate market is splitting into two distinct tracks. While demand for large-format warehouses is cooling, operators of small-bay warehouse properties, defined as spaces of 10,000 square feet or less, are reporting near-full occupancy and waitlists. Jim Sapp, Founder and CEO of RISE Commercial District, attributes this divide to lasting changes in how companies manage inventory and distribution, not just a temporary market fluctuation.

“Our bread and butter is 10,000 square feet and less, so it doesn’t compete with 500,000 square feet. We’re last-mile distribution, and that’s why we call it small bay warehousing,” Sapp says.

RISE operates 17 locations in six states, focusing on warehouse units of 5,000 square feet or smaller. Sapp reports waitlists at nearly all sites, with tenants staying an average of 4.5 years and 78 percent choosing to renew. Occupancy has hovered near 100 percent for over a decade, even as construction costs have risen 25 percent since before the pandemic and interest rates have climbed.

Why Companies of All Sizes Are Reducing Their Warehouse Footprints

The push toward smaller warehouse spaces is not limited to startups or e-commerce sellers. Sapp says both Fortune 500 companies and small businesses are reducing their warehouse needs in response to new inventory management practices and supply chain strategies.

“We’re seeing more companies realize they don’t need 20,000 or 30,000 square feet. They can get by with two or three thousand. Both big and small companies are right-sizing,” Sapp says.

RISE’s tenants include Fortune 500 firms such as McDonald’s, LG, and Cummins Engine, as well as individual entrepreneurs selling on platforms like Etsy and Facebook. The key factor is not company size but the need for flexible, distributed warehouse capacity to support last-mile delivery or project-based storage, without the burden of a large, long-term lease.

Sapp credits the trend to faster ordering and fulfillment cycles. With products now reaching customers within days, companies no longer need to maintain large inventories in massive warehouses. Instead, they look for smaller spaces that match their actual storage and distribution needs. This shift suggests that the slowdown in demand for big-box warehouses is structural. As companies rely on quicker replenishment, the case for holding large spaces weakens. Demand for 500,000-square-foot facilities has dropped, while 5,000-square-foot units remain in high demand.

Why Institutional Investors May Be Missing the Small Bay Warehouse Opportunity

Small bay warehouses operate with different economics and management models than traditional industrial real estate. Many properties are converted from existing structures rather than built as ground-up speculative projects. RISE’s first location, for example, was a shuttered lumber yard. Tenant relationships are handled directly by in-house staff, and lease terms are typically 1 year, rather than the multi-year commitments common in larger facilities.

These differences mean small bay warehouses do not compete directly with institutional-grade industrial properties, but they do capture tenant demand that once went to bigger spaces. A company that previously leased 20,000 square feet in a traditional park might now lease two 3,000-square-foot units in separate locations to serve different markets.

Sapp notes that while construction costs have surged, land acquisition costs have stayed stable over the past five years. This, combined with the ability to repurpose existing buildings, gives small bay operators a cost edge in some markets. However, the model requires active management and direct tenant relationships, which may not align with the preferences of institutional investors who favor net-lease structures and passive income. The key question for the industrial sector is whether demand for smaller, flexible spaces will persist. If it does, the types of properties that attract premium valuations could shift, affecting long-term investment strategies.

How RISE Commercial District Built a High-Occupancy Small Bay Warehouse Business

RISE Commercial District has built its business around secure, accessible warehouse space with short-term leases and on-site management. Properties are designed for truck access with 75-foot spacing between buildings, and security features include key fob entry, video surveillance, and license plate readers. The company excludes automotive tenants to reduce operational complexity and insurance costs.

Expansion has focused on markets where demand for small bay space exceeds supply. Sapp visits each site quarterly and maintains a corporate office in Indianapolis, where RISE oversees construction, leasing, and property management internally. This vertical integration allows RISE to control costs and maintain consistent service standards.

“We’re internally vertical. We build our buildings and lease them out. We don’t use brokers. We have our own sales staff,” Sapp says.

As industrial real estate adapts to post-pandemic patterns, operators like RISE show how flexible, tenant-focused warehouse space can maintain high occupancy and pricing power even as demand for larger formats weakens. Whether institutional investors will pursue similar models or leave the small-bay market to entrepreneurial operators will depend on how enduring the need for right-sized warehouse space proves to be.

What the Small Bay Warehouse Trend Means for Industrial Real Estate Investors

The resilience of the small bay warehouse sector signals a broader shift in how companies manage logistics and real estate. As supply chains become more decentralized and inventory cycles shorten, demand is rising for flexible, smaller spaces that can quickly adapt to changing business needs. This trend challenges traditional assumptions about scale and efficiency in industrial real estate.

For investors and developers, the lesson is clear: future growth may depend less on building ever-larger facilities and more on providing adaptable, service-oriented spaces that match evolving distribution strategies. As market conditions continue to shift, those who recognize and respond to the demand for small bay warehousing may find opportunities that larger players overlook.