While headlines continue to focus on mega-warehouse development and the shake-out in large-format logistics real estate, a quieter story is playing out in the industrial market. Shallow-bay industrial—multi-tenant, infill properties typically under 50,000 square feet—is outperforming. And the gap is widening.
Research from CBRE, Cushman & Wakefield, and other leading industry sources points to the same conclusion: shallow-bay industrial is benefiting from a structural supply-demand imbalance that shows no signs of resolving. While broader industrial vacancy has climbed to 6.8% as of Q1 2026, vacancy for small-bay product remains significantly tighter—with many markets holding below 4%.
The shallow-bay market is defined, in large part, by what hasn’t been built. According to CBRE, more than 80% of existing shallow-bay inventory was constructed before 2000, and nearly half predates 1980. Properties built since 2010 represent just 5% of total inventory.
That isn’t changing. JLL data shows that new shallow-bay construction accounts for just 0.7% of all new U.S. industrial development—the lowest share in decades. Rising land costs, zoning constraints, and the economic preference of institutional capital for large-format, single-tenant distribution facilities have effectively shut off the new supply pipeline for shallow-bay space.
According to Cushman & Wakefield, new industrial construction completions overall declined 27% year-over-year in Q1 2026, reducing pressure on the market. For shallow-bay specifically, where new supply was already minimal, this only tightens an already constrained inventory base.
Large-format industrial—facilities over 100,000 square feet—currently sits at a national vacancy rate near 9.7%, according to CommercialCafe’s 2026 U.S. Industrial Market Report. That’s roughly double the estimated 4.4% vacancy rate for sub-100,000 SF product tracked by Cushman & Wakefield.
Zoom in further and the picture sharpens. Properties under 50,000 square feet—the core shallow-bay segment—are running vacancy rates of 3–5% in most major markets. In some of the most constrained submarkets, vacancy has fallen below 2.5%, with new deliveries reaching full occupancy within weeks and waitlists forming for spaces that haven’t yet turned over.
The vacancy spread between shallow-bay and broader industrial has been widening since 2017. By early 2024, CBRE reported it had grown to 2.5 percentage points. That gap has continued to expand.
Shallow-bay asking rents have climbed more than 50% since 2010, according to CBRE—a pace that reflects genuine, structural demand rather than a speculative cycle. In the sub-50,000 SF segment specifically, rents have grown over 40% since 2020, outpacing the 30% growth seen across the broader industrial market over the same period.
In primary markets, asking rates for quality shallow-bay space routinely exceed $13.50 per square foot NNN. In the tightest metros—Orange County, Charlotte, Northern Virginia—rents are higher still. Secondary Midwest markets like Chicago, Milwaukee, and Columbus show comparatively lower absolute rates but equally tight availability, as local manufacturers and distributors compete for a limited pool of space.
Importantly, rent growth in secondary markets is accelerating. While the ten highest-cost metros saw shallow-bay rent growth of just 1.6% in recent periods, the next fifty largest markets averaged 5.9% annual growth—a signal that the outperformance of this segment is broadening geographically, not narrowing.
The demand driving shallow-bay performance doesn’t come from a handful of national logistics operators. It comes from thousands of small and mid-sized businesses—contractors, light manufacturers, last-mile distributors, e-commerce operators, service providers—that need functional space close to customers and employees.
A typical shallow-bay property might house 12 to 40 tenants across a wide range of industries, with no single tenant accounting for more than 5–10% of the rent roll. This diversification is a structural risk mitigator: even multiple simultaneous tenant losses don’t materially impair cash flow. JLL research shows that annual leasing volume in the shallow-bay category has averaged approximately 250 million square feet over the past decade, across multiple economic cycles.
For investors, the NNN lease structure provides an additional layer of protection. Operating expenses are passed through to tenants, shielding landlords from rising insurance, taxes, and maintenance costs—an effective inflation hedge. In some shallow-bay markets, year-over-year rental increases have run at 6.5%, well ahead of CPI.
Many shallow-bay properties were built on the outskirts of metropolitan areas decades ago. The cities grew around them. Today, those same assets sit inside dense residential and commercial zones, surrounded by the customers, labor, and transportation access their tenants depend on.
Municipalities have increasingly restricted new industrial development in infill locations, effectively making well-positioned shallow-bay assets irreplaceable. For tenants whose businesses require proximity to population centers—not just cheap land on the urban fringe—these locations command a genuine premium. For owners, that scarcity translates into pricing power and long-term asset appreciation.
Institutional investors are taking notice. Deep-pocketed capital has begun paying meaningful premiums for well-located shallow-bay assets, driven by supply scarcity and rising replacement costs. Recent transaction activity in 2026 includes Basis Industrial’s $144.6 million acquisition of an 839,000-square-foot shallow-bay package across Atlanta and Orlando, and Mapletree’s mid-shallow-bay logistics portfolio spanning 19 assets across Dallas-Fort Worth and Chicago.
The fundamentals driving shallow-bay performance today are the same fundamentals that have shaped Avistone’s investment strategy. Avistone targets multi-tenant industrial assets in established markets where supply is constrained, tenant demand is local and durable, and active management can drive meaningful value creation.
This means more than acquiring the right properties. It means improving building functionality, modernizing common areas, enhancing curb appeal, and repositioning suites to better meet what tenants actually need. The goal is to generate stable cash flow from a diversified rent roll while systematically closing the gap between in-place rents and market.
The industrial sector is not monolithic. Large-format logistics real estate is working through a supply overhang that will take time to resolve. Shallow-bay industrial—supply-constrained, infill-located, and powered by a tenant base that serves local economies—is operating in a fundamentally different supply-demand environment.
With new construction at historic lows, vacancy well below the broader market, and rent growth outpacing larger product types, the case for shallow-bay industrial in 2026 rests on something more durable than market timing. It rests on structural scarcity—and that isn’t going away.