As Industrial Demand Rebounds, Multi-Tenant Light Industrial Sets the Pace
BKM Capital Partners’ Q1 2026 Light Industrial Market Update highlights renewed industrial momentum led by resilient small-bay fundamentals
Newport Beach, CA – May 13, 2025 – National industrial demand returned to a two-year high in the fourth quarter of 2025, but the rebound hasn’t been uniform. The gap between smaller assets and large-format industrial continued to widen, with the small-bay segment remaining the tightest and most actively leased part of the sector. Those dynamics are explored in detail in the newly released Q1 2026 Light Industrial Market Update from BKM Capital Partners, a vertically integrated fund manager specializing in multi-tenant small- and mid-bay industrial real estate.
National net absorption reached 62 million square feet in the final three months of last year, marking the strongest quarterly result in two years. Meanwhile, industrial sales volume climbed 11% year-over-year to $91.3 billion, with capital is also rotating decisively into smaller deals. Transactions under $100 million accounted for 73% of 2025 industrial sales, well above the long-term average of 62%.
“One of the strongest signals we’re seeing right now is in M&A activity,” said Brian Malliet, BKM’s Founder, CEO and Chief Investment Officer. “A great deal of capital came into small-bay over the past few years expecting the operational profile to look like bulk industrial. It doesn’t. As the cycle has tightened, the gap between disciplined operators and recent entrants has become hard to ignore, and consolidation is the natural result.”
Other key findings from BKM’s latest Light Industrial Market Update include:
include:
Small-Bay Vacancy Remains Tighter: Buildings under 100,000 square feet posted average vacancy of 4.9% in Q4 2025, roughly half the rate of larger facilities.
Leasing Demand Is Concentrated in Smaller Spaces: 80% of all industrial leasing activity in Q4 2025 involved spaces under 50,000 square feet, underscoring how concentrated tenant demand has become at the smaller end of the market.
Smaller Assets Command a Rent Premium: Properties under 150,000 square feet command a 21% rate premium over larger industrial properties, a reflection of how scarce well-located smaller product has become.
Small-Bay Supply Remains Constrained: Buildings under 50,000 square feet represent only 7% of total industrial product under construction, reinforcing long-term barriers to new supply.
Manufacturing and AI Are Reshaping Demand: U.S. manufacturing construction spending has climbed 170% since 2021 to roughly $200 billion, while AI-enabled micro-fulfillment and advanced production technologies are shrinking tenant footprint requirements. Together, these trends are accelerating demand for smaller, flexible industrial space.
BKM’s own platform activity reflects the continued institutionalization of the sector. 2025 was the firm’s largest growth year since inception, with assets under management increasing more than 45%. BKM acquired 46 properties totaling 15.6 million square feet across seven states for $1.2 billion in acquisition value, executed 626 leases covering 1.4 million square feet, delivered 433 spec units, and achieved average leasing spreads of 23% across the portfolio.
“The gap between small- and mid-bay and the broader industrial market is showing up across our portfolio,” said Mason Waite, Senior Managing Director of Asset and Portfolio Management for BKM. “Lease-up timelines have shortened, tenant retention is improving, and the bid environment for infill space hasn’t been this competitive in several years. The users driving this sector include everything from service businesses and light manufacturers to e-commerce, logistics and advanced technology firms. These tenants need practical, flexible space close to the markets they serve. That demand profile continues to support the durability of small-bay industrial, particularly in infill locations where new supply is difficult to create.”
BKM expects near-term volatility to persist as tenants and investors monitor interest rates, tariffs and geopolitical dynamics. Even so, greater clarity on tariffs is already bringing delayed leasing decisions off the sidelines, and continued strength in e-commerce, manufacturing and last-mile logistics is expected to support demand normalization through 2026.
The Q1 2026 Light Industrial Market Update is part of BKM Intel, the firm’s ongoing research series and thought leadership platform examining the forces shaping industrial real estate across the United States. Click here to download the full update, and visit visit BKM’s website to explore additional BKM Intel publications and thought leadership resources,
