BKM Capital Partners’ Q4 2025 Market Update Highlights Continued Outperformance of Small-Bay Industrial Assets

NEWPORT BEACH, CA—January 26, 2026—While recent headlines have focused on normalization across the broader industrial sector, BKM Capital Partners’ latest research points to a clearer story beneath the surface: the smallest buildings remain the tightest and increasingly the most liquid part of the market. In fact, vacancy for buildings under 100,000 square feet is running roughly half the rate of larger industrial facilities, and new supply remains exceptionally limited, reinforcing the segment’s pricing power as the cycle resets.

Those dynamics are among the key findings in BKM’s newly released Q4 2025 Light Industrial Market Update, which examines how small-bay industrial continues to outperform as the broader market recalibrates. Leasing demand remains concentrated in smaller suites, with the vast majority of activity involving units under 50,000 square feet. This imbalance continues to support market-leading occupancy, stronger rent growth, and investor conviction in infill-oriented small-bay assets.

“What stands out right now is not just demand, but where liquidity is actually returning first,” said Brian Malliet, Chief Investment Officer at BKM Capital Partners. “As valuations stabilize, we’re seeing capital re-engage most decisively in small-bay industrial because the fundamentals are easier to underwrite and the income story is clearer. That matters in a market where conviction—not leverage—is driving investment decisions.”

Key findings from the Q4 2025 Light Industrial Market Update include:

• Small-Bay Fundamentals Continue to Outperform: Leasing activity remains heavily skewed toward small-bay product, driving higher occupancy and pricing power. Within BKM’s U.S. portfolio, occupancy outpaces competitors by 4-6%, with average leasing spreads ranging from 17-21%.

• Severely Constrained Supply: Less than 1% of small-bay inventory is currently under construction, compared to more than 3% for large-format industrial, reinforcing scarcity and supporting sustained rent growth.

• Capital Markets Favor Small-Bay Assets: Industrial transaction activity continues to rebound, with smaller deal sizes accounting for the majority of industrial sales. Buildings under 100,000 square feet posted double-digit year-over-year price appreciation, significantly outperforming larger assets.

• Powerful Demand Tailwinds: AI, automation, and data-driven logistics are reshaping industrial space utilization, while e-commerce and third-party logistics users remain leading drivers of leasing near population centers. At the same time, a surge in domestic manufacturing—fueled by reshoring initiatives, semiconductor investment, and data-center expansion—is accelerating demand for light industrial facilities.

“The gap between small-bay and large-format industrial continues to widen,” said Mason Waite, Senior Managing Director of Asset and Portfolio Management at BKM. “What’s changing is how clearly the market is rewarding the segment in the form of tighter vacancy, stronger rent performance, and transaction pricing that’s rebounding faster in smaller industrial product. In this cycle, investors are underwriting where fundamentals and liquidity line up, and small-bay industrial is increasingly among their targets.”

These dynamics are especially evident in infill markets such as Los Angeles, where port activity, leasing velocity, and rent growth continue to strengthen amid a sharply reduced construction pipeline. Infill submarkets are experiencing tight conditions reminiscent of pre-pandemic levels, reinforcing the long-term appeal of well-located small-bay assets.

The Q4 2025 Light Industrial Market Update is part of BKM’s BKM Intel Thought Leadership Series, which delivers data-driven insights into the forces shaping industrial real estate across the United States. Download the full Q4 market update here, and explore BKM’s library of research, reports, and market updates here.