Growing businesses move through a predictable progression of space. One rung of that ladder is structurally under-supplied — and that is where the investment opportunity sits.
Ask the owner of a four-van electrical contracting business where they keep their materials and you will usually hear a version of the same story. It started in the garage. Then a storage unit, or two, or three. Then a search for something better that took far longer than it should have.
The progression
Businesses move through space in stages:
- The garage or home. Free, immediate, and unsustainable past a certain headcount.
- Self storage. Solves square footage. Solves nothing else — no power for tools, no drive-in access for a loaded vehicle, no address a business can operate from.
- Small-bay industrial. A right-sized unit with a roll-up door, power, clear height, a small office and parking. The first space where the business can actually operate.
- Traditional industrial. Conventional warehouse product, generally underwritten by institutional capital for larger occupiers.
Most discussion of industrial real estate concerns step four. Most businesses are somewhere between steps one and three.
Why the third step is hard to find
The economics of construction work against small-format supply. Subdividing a building into many units multiplies demising walls, doors, electrical service, plumbing and life-safety requirements. Fixed development costs are spread across less leasable area. In most infill locations, a developer choosing between one large tenant and fifteen small ones has an easier path to a financeable project with the former.
The result is an inventory that is largely inherited rather than built. CBRE reports that more than 80% of shallow-bay stock predates 2000 and that post-2010 construction accounts for only 5% of inventory.
Translating the tenant problem into an investor thesis
A tenant constraint becomes an investment thesis when three things are true at once:
- The demand is real and local, generated by businesses that must be near their customers
- The supply cannot easily respond, because construction economics do not support it
- The existing stock is fragmented and under-managed, leaving room for an operator to add value through work rather than through market movement
We believe all three hold in small-bay industrial today. None of them guarantees a return on any individual asset — that still comes down to basis, execution and operations.
Sources: CBRE, “Shallow-Bay Industrial Availability Remains Tight Amid Strong Demand,” March 24, 2026.