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The Hunt for Small Industrial Spaces Tightens Across America




Exploring the Scarce Availability of Compact Industrial Properties in Key U.S. Regions


The search for small-scale industrial properties is becoming increasingly difficult across the United States, with certain areas feeling the pinch more acutely. This trend is notably pronounced in various Sun Belt locations, where businesses related to construction trades are rapidly absorbing available spaces.


In an unexpected twist, Louisville, Kentucky emerges as one of the nation's most challenging markets to find available small-bay industrial spaces. Despite its unassuming profile in this context, Louisville's strategic position in the thriving electric vehicle production zone and its significant distribution hubs amplify its industrial leasing demand.


While high-end apartments and large distribution centers grapple with increasing vacancies due to a surge in pandemic-era constructions, smaller industrial spaces are bucking the trend, demonstrating robust occupancy and escalating rents.

The scarcity of small industrial facilities is largely attributed to the hurdles in acquiring land and approvals for industrial development near major cities, discouraging developers unless the projects promise substantial returns. Moreover, developers focusing on large distribution centers are reluctant to partition their spaces to accommodate tenants seeking less than 25,000 to 50,000 square feet, leaving a gap in the market for small, specialized industrial spaces.


An analysis by CoStar delves into the U.S. regions most impacted by this scarcity, evaluating markets based on availability rates for spaces under 50,000 square feet and the median leasing duration for smaller segments. This evaluation offers insight into the competitive landscape for small industrial spaces, highlighting areas like Nashville, Tennessee, and several Florida cities as hotspots due to their burgeoning populations and associated service industries.


Interestingly, significant port cities and regions experiencing in-migration also face shortages, indicating a broader trend that transcends local economic factors.

Surprisingly, Louisville stands out for its tight market, bolstered by its strategic location and significant industrial leasing drivers, contrasting with the moderate demand observed in major Midwest cities where population growth does not mirror industrial space uptake.

Conversely, Texas cities, known for their pro-growth policies, show a different pattern. Despite a higher rate of small industrial property development, cities like Austin and Houston exhibit elevated availability rates, suggesting a balancing act between supply and growth.


Even in markets with higher availability, the inventory of small-scale industrial spaces remains tight, underscoring a national trend towards limited small industrial real estate options. This scenario presents a complex landscape for businesses seeking small industrial premises, reflecting broader economic, demographic, and policy-driven dynamics influencing the U.S. industrial real estate market.


Interested in a flex-space feasibility study? Contact us today.


Source: Adrian Ponsen, Michal Mohelsky, COStar, Research of MMCG

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