Shallow-Bay Warehouse Demand Outpaces Supply, Driving Strong Rent Gains
Demand for shallow-bay warehouses — industrial properties under 50,000 square feet with clear heights between 14 and 28 feet — continues to outstrip supply, sending asking rents more than 50% higher since 2010, according to CBRE research. These smaller-format facilities serve local distributors, light manufacturers and service-oriented users, a tenant base distinct from the national logistics occupiers fueling big-box development.
Historically, shallow-bay vacancy began falling below overall industrial vacancy in 2017, a trend that has persisted through the recent development cycle. By early 2024, shallow-bay vacancy was approximately 2.5 percentage points below the overall industrial rate, underscoring the limited availability of these facilities amid steady tenant demand. While overall industrial supply has grown rapidly, shallow-bay inventory has expanded only modestly, leaving many markets reliant on aging buildings. Nearly half of U.S. shallow-bay inventory was constructed before 1980, and more than 80% before 2000, with properties built since 2010 accounting for just 5% of total stock.
CBRE identifies several key drivers of this durable demand. Rising population in urban and suburban areas, service-oriented businesses requiring smaller space footprints, and constraints on land use for smaller developments have limited new construction. Big-box facilities remain the development focus, supported by institutional capital attracted to long-term leases and modern amenities. As a result, shallow-bay properties retain tight fundamentals and increasingly command premium rents relative to older industrial stock.
Regional market conditions vary. Orange County, California, and Charlotte, North Carolina, exhibit some of the tightest conditions, combining low vacancy with high rents. Fast-growing markets such as Phoenix, Atlanta and Dallas-Fort Worth show above-average rents but slightly higher vacancy due to larger development pipelines or market size. Midwest markets including Chicago, Milwaukee and Columbus also experience tight availability, though asking rents remain comparatively lower than coastal and high-growth regions.
Looking ahead, CBRE expects shallow-bay fundamentals to remain constrained. Limited new construction, aging inventory and ongoing demand from small and mid-sized occupiers suggest vacancy will stay low and rents continue to rise, the report said.
Source: GlobeSt/ALM