Small Bay Industrial: High Demand, High Complexity, High Opportunity

Why It Matters

Because the small‑bay shortage drives rents higher, investors who master the operational demands can capture superior yields while avoiding costly over‑development.

Key Takeaways

• Small‑bay demand outpaces supply, creating a pricing premium.
• Development costs $250‑$300/ft, far above existing stock $150‑$200.
• Flex spaces serve 99% of U.S. businesses with mixed‑use needs.
• Operational complexity and on‑site management are critical success factors.
• Value‑add investors risk overbidding; stabilized assets offer steadier returns.

Summary

The episode of the Industrial Real Estate Show focuses on the growing gap between demand and supply in the small‑bay (flex) segment of industrial property, highlighting why investors view it as the most exciting niche in 2026.

Jeremiah Boucher notes that tenants under 5,000 sq ft are leasing at the fastest pace, driven by a blend of office, retail, and light‑manufacturing needs. Existing inventory trades at $150‑$200 per square foot, while new construction costs $250‑$300, creating a steep replacement‑cost premium that limits new supply.

He emphasizes that successful investors must evaluate barrier‑to‑entry metrics—available supply, replacement cost, and lease‑up risk. Boucher also warns that operational complexity, from on‑site management to MEP upgrades, can erode returns if not properly staffed.

The takeaway for capital allocators is to prioritize well‑occupied, core‑market assets priced below replacement cost, or to partner with a dedicated management platform, rather than chasing over‑priced value‑add or speculative ground‑up projects.

Original Description

In this episode of The Industrial Real Estate Podcast, Chad Griffiths sits down with Industrial investor Jeremiah Boucher of ⁠Patriot Holdings⁠ for a deep dive into one of the hottest segments in commercial real estate: small bay industrial.

Jeremiah breaks down why demand for flex and contractor bay space continues to outperform larger industrial formats, despite rising construction costs and economic uncertainty. The conversation explores the real operational complexity behind small bay investing — from tenant turnover and parking management to leasing velocity, asset management, and maintaining strong tenant relationships.

Chad and Jeremiah also unpack:

- Why small bay industrial remains undersupplied across North America

- The difference between property management and true asset management

- Why operational execution is the real “alpha” in industrial investing

Whether you’re an active industrial investor, broker, developer, or LP looking to understand the evolving industrial landscape, this episode delivers a masterclass on what separates average operators from elite ones in today’s market.

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⁠Connect with Jeremiah ⁠

https://www.patriotholdings.com/team/jeremiah-boucher

Connect with us: https://linktr.ee/industrialpodcast