How Class B Industrial Properties Are Adapting To Modern Demand

Although often overshadowed by newly developed facilities from recent years, Class B industrial assets continue to attract a broad range of businesses.

These properties account for 53.5% of the total U.S. industrial inventory, or 10.7 billion square feet, according to CommercialEdge. Their appeal has only grown in the wake of declining vacancy rates and surging rental costs after 2021.

“This pricing pressure pushed many users out of Class A availabilities, resulting in Class B properties achieving the lowest vacancy levels among all building classes,” said Tom Harmon, Vice President of Transactions at Bridge Industrial. “Vintage buildings are crucial to the industrial real estate landscape, offering cost-effective options while being located in highly desirable areas near dense populations.”

One standout within the Class B industrial market is shallow bay properties. These assets remain in high demand, especially among last-mile users and small- to mid-size tenants, while larger industrial facilities from the 1980s and 1990s can struggle against newer developments. According to JLL, buildings from this era make up 25% of the nation’s industrial stock, with about 30% categorized as shallow bay.

“You might be surprised to learn that the vacancy rate for this cohort is lower than the overall industrial vacancy rate—around 4.5% compared to 7.1%,” said Trent Agnew, JLL Capital Markets Industrial Co-Lead & Senior Managing Director.

While modern facilities often prioritize features like higher ceilings, more docks, and greater power capacity, shallow bay properties thrive due to their flexibility and prime locations, making them a competitive alternative to newer developments.

Adapting to Stay Relevant

To maintain their appeal, Class B industrial properties are evolving to meet the changing demands of tenants. Their attractiveness lies in both strategic locations and the potential for modernization.

Upgrades like high-efficiency HVAC systems, LED lighting, and energy-efficient roofing reduce operational costs and improve sustainability, which helps maintain these properties’ competitiveness. Additionally, capital improvements—such as adding more loading docks, reconfiguring layouts, and updating fire suppression systems—boost functionality and market appeal. Expanding docking facilities and increasing parking capacity further enhance these properties’ adaptability, particularly for logistics-oriented tenants. However, location reminas the top driver of the demand.

“Properties in high-barrier-to-entry, infill locations continue to be in high demand, and there’s no sign that this trend will change,” Harmon believes. “Tenants have repeatedly shown they are willing to accept lower clear heights or tighter truck courts to secure an ideal location.”

Current tenants of Class B properties include manufacturers, e-commerce companies, and last-mile delivery services—sectors that benefit from the accessibility and distribution efficiency these properties offer, according to Erik Foster, Principal & Leader of U.S. Industrial Capital Markets at Avison Young. The 12th annual U.S. Industrial Tenant Demand Study by JLL highlights the increasing demand for manufacturing facilities, signaling a shift in industrial activity and a rise in domestic production.

“Class B assets also appeal to non-traditional tenants due to their adaptability,” said Toby Nelson, Vice President of Leasing at The Silverman Group. “Their flexibility is attracting tech companies, medical labs, restoration businesses, and even unconventional occupiers like churches. These properties stay competitive by focusing on what they do best—offering flexibility and affordability. As long as they are well-maintained and updated to meet modern needs, they’ll continue to thrive.”

This flexibility is particularly important as many tenants now seek spaces that combine office areas with manufacturing, storage, or showroom functions. There is also a growing demand for facilities capable of accommodating specialized uses, such as laboratories or small-scale production.

Balancing Relevancy And Redevelopment

Class B industrial assets are at a crossroads in today’s fast-evolving logistics and e-commerce landscape. While their prime infill locations make them highly valuable for last-mile distribution, many lack the modern infrastructure tenants now demand. This has left investors and owners with a decision: should they invest in upgrades or pursue full-scale redevelopment?

The choice between modernizing a Class B facility or redeveloping it hinges on several factors. While retrofitting older properties with modern HVAC systems, LED lighting, and additional loading docks can improve efficiency at a lower cost than new construction, demolishing existing structures to create modern assets may offer better investment returns in certain cases.

“If redeveloped, these properties would likely transform into highly efficient, multistory logistics hubs,” Foster explained.

In high-barrier-to-entry areas, where new development is expensive and time-consuming, renovation is often a more practical solution.

“Many older buildings have solid structures and layouts that can be updated for modern tenants without starting from scratch,” Nelson pointed out. “In tight markets or areas with zoning restrictions, upgrades can save both time and money.”

Looking ahead, Class B industrial properties are likely to remain a crucial part of the logistics ecosystem. Their cost-effectiveness, strategic locations, and potential for innovative redevelopment make them an attractive long-term investment. With industrial investment expected to pick up again in 2025, demand for well-positioned Class B properties is forecast to rise.

At the same time, sustainability concerns and technological advancements will drive continued modernization, prompting investors to weigh immediate costs against long-term property value and tenant satisfaction.

Source: Commercial Property Executive