BKM Capital Partners Q1 2026 Report: Industrial Real Estate Small-Bay Segment Leads Sector Rebound

NEWPORT BEACH, CA — BKM Capital Partners, a vertically integrated fund manager focused on multi-tenant small- and mid-bay industrial real estate, has released its Q1 2026 Light Industrial Market Update, finding that national industrial demand rebounded to a two-year high in the fourth quarter of 2025 — though the recovery has not been uniform across asset sizes.

Industrial Demand Rebounds, But Small-Bay Leads the Way

National net absorption reached 62 million square feet in Q4 2025, the strongest quarterly result in two years, according to the report. Industrial sales volume climbed 11% year-over-year to $91.3 billion, with capital increasingly rotating into smaller transactions. Deals under $100 million accounted for 73% of 2025 industrial sales, well above the long-term average of 62%, the firm reported.

The divergence between small-bay and large-format industrial assets was a central theme of the update. Buildings under 100,000 square feet posted average vacancy of 4.9% in Q4 2025 — roughly half the rate of larger facilities. Meanwhile, 80% of all industrial leasing activity in Q4 2025 involved spaces under 50,000 square feet, and properties under 150,000 square feet commanded a 21% rent premium over larger industrial properties.

Supply constraints are reinforcing that dynamic. Buildings under 50,000 square feet represent only 7% of total industrial product currently under construction, according to BKM's findings.

Manufacturing Growth and AI Reshaping Industrial Demand

The report identifies two structural forces accelerating demand for smaller industrial space. U.S. manufacturing construction spending has climbed 170% since 2021 to approximately $200 billion. At the same time, AI-enabled micro-fulfillment and advanced production technologies are shrinking tenant footprint requirements, the firm said, driving demand for flexible, smaller-format industrial space.

"The users driving this sector include everything from service businesses and light manufacturers to e-commerce, logistics and advanced technology firms," said Mason Waite, Senior Managing Director of Asset and Portfolio Management for BKM. "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 Capital Partners Platform Activity

BKM Capital Partners reported that 2025 was its largest growth year since inception, with assets under management increasing more than 45%. The firm acquired 46 properties totaling 15.6 million square feet across seven states for $1.2 billion in acquisition value. BKM also executed 626 leases covering 1.4 million square feet, delivered 433 spec units, and achieved average leasing spreads of 23% across its portfolio.

Brian Malliet, BKM's Founder, CEO and Chief Investment Officer, pointed to consolidation activity as a signal of the sector's maturation. "One of the strongest signals we're seeing right now is in M&A activity," Malliet said. "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."

Outlook: Near-Term Volatility, Long-Term Demand Normalization

BKM expects near-term volatility to persist as tenants and investors monitor interest rates, tariffs, and geopolitical dynamics. The firm noted, however, that greater clarity on tariffs is already bringing delayed leasing decisions off the sidelines. Continued strength in e-commerce, manufacturing, and last-mile logistics is expected to support demand normalization through 2026, according to the report.

Waite added that portfolio-level indicators are trending positively. "Lease-up timelines have shortened, tenant retention is improving, and the bid environment for infill space hasn't been this competitive in several years," he said.

The Q1 2026 Light Industrial Market Update is part of BKM Intel, the firm's ongoing research and thought leadership series examining forces shaping industrial real estate across the United States. The full report is available for download at bkmcapitalpartners.com.

Sources: BKM Capital Partners, May 13, 2026