As with any industry, big industrial real estate deals make the biggest headlines. So, when that 1-million-square-foot warehouse just outside a primary market gets purchased or leased by a big box chain or e-commerce giant, it’s all anyone wants to talk about. However, as consumer demand continues to shift toward faster, ultra-local, highly flexible delivery options, industrial tenants are opening their eyes to other opportunities in urban markets, such as small-bay warehouses.
These smaller warehouse facilities generally offer unit sizes ranging from 2,000 to 20,000 square feet, making it more feasible to place them within or very near densely populated urban centers. As such, small-bay warehouses are quickly becoming the backbone of many urban logistics and last-mile delivery strategies as parcel carriers, couriers, 3PLs, and other service providers leverage their flexibility and convenience to stay competitive in the age of next-day and same-day fulfillment.
Why Small-Bay Warehouse Demand Is Surging
The industrial real estate market has been in a rebalancing phase for more than two years. This period resulted from developers overcompensating for high demand during the pandemic, and, consequently, overdelivering too much inventory. As this rebalancing phase occurred, it was tenants of smaller facilities, such as small-bay warehouses, that helped prop up the sector’s fundamentals.
The e-commerce boom that preceded the slowdown in larger industrial facilities has reshaped distribution and fulfillment networks by continually pushing inventory closer to consumer markets as tenants try to meet demand for faster delivery. While major distribution hubs play a crucial role in national and regional fulfillment networks, small-bay warehouses fill a critical gap for multiple reasons:
- Bringing inventory closer to urban cores. Consumers want optionality, and one option they increasingly demand is getting the items they buy online as quickly as possible. By locating inventory within or adjacent to major population centers, retailers and service providers enable faster delivery cycles and more efficient routing.
- Supporting rapid deployment and later cutoff times. By reducing transit time between the inventory location and the end consumer, sellers can offer later cutoff times for same-day and next-day orders. This capability creates a major competitive advantage.
- Offering affordability and scalability. In periods of high inflation or uncertain economic trajectories, growing brands and regional carriers are taking far less risk by investing in small-bay warehouses rather than full-scale logistics hubs. With many such facilities offering unit-based leasing, scaling up or down is also much easier.
“The small-bay segment has become one of the most dynamic parts of industrial real estate,” said Frank Crivello, founder and chairman of industrial real estate brokerage firm Phoenix Investors. “These buildings breathe new life into older urban corridors and give logistics operators the proximity they need to provide their end customers with the options they want.”
What Is a Small-Bay Warehouse?
Simply being located in or near an urban area doesn’t necessarily qualify an industrial facility for this type of use. Successful small-bay warehouses typically share a few features that make them well-suited for supporting urban logistics, such as:
- Strategic location. The highest-demand facilities will sit within 5 to 15 miles of a major urban core, offering access to major road networks and densely populated delivery zones.
- Flexible layouts. Small-bay warehouses may be used as cross-docks, short-term overflow storage, high-volume product storage and fulfillment, returns processing, and other use cases. As such, tenants usually look for features such as multiple dock doors, racking-friendly clear heights, sufficient parking for cargo vans and box trucks, and independent unit access.
- Modernization potential. Small-bay warehouses often originated as legacy industrial stock—urban machine shops, small factories, and supporting infrastructure—so tenants want to make sure they can make upgrades for energy efficiency, security, and other factors.
The Future of Urban Logistics Looks Smaller
As city populations continue to boom and delivery demands keep moving the needle from days to hours, the industrial real estate landscape must adapt. In many ways, the small-bay market is simply mirroring broader logistics trends: customer centricity, inventory decentralization, and hyper flexibility. As a result, it’s becoming clear that these small facilities will continue to have an outsized impact on modern fulfillment networks in the years to come.
About Phoenix Investors
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations, and public stakeholders, Phoenix has developed a proven track record of generating superior risk-adjusted returns while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost-efficient solutions, and a reputation for success.
