Small-Scale Industrial Properties Outperform And Emerge As Resilent Segment In Market Amid Broader Slowdown

Small-scale industrial assets are proving to be a bright spot in the U.S. industrial sector, even as larger facilities grapple with a sharp pullback in development.

CommercialCafe’s latest national report shows that construction starts for properties under 100,000 square feet climbed 16% year-over-year, with 340 new projects breaking ground. Meanwhile, starts on facilities over 100,000 square feet fell by more than half during the same period.

Demand for lower-square-footage buildings continues to be fueled by evolving supply chain strategies, last-mile logistics needs and rising consumer expectations. Strong, steady leasing activity has pushed prices higher: the average sale price for small industrial buildings rose 10.6% year-over-year, compared with a 3.5% increase for larger assets.

“The small-scale industrial sector will remain in favor in the coming years,” CommercialCafe noted, citing growing same-day delivery demand and the flexibility of well-located urban infill sites.

Nationally, in-place industrial rents grew 5.7% over the past year to $8.73 per square foot, though lease spreads tightened in several metros. Miami led major markets with 8.9% rent growth, supported by robust trade flows through the Port of Miami. At the same time, the U.S. industrial vacancy rate rose 240 basis points in October to 9.6% amid several years of elevated deliveries.

Roughly 353 million square feet of industrial space—about 1.7% of existing inventory—is now under construction. Data centers make up more than half of recent starts, with Atlanta emerging as a key hub for cloud and AI-driven development. Year-to-date, industrial transactions total $61.8 billion, averaging $136 per square foot, and the report anticipates a strong close to 2025 as interest rate cuts and year-end activity boost dealmaking.

Regional performance remains mixed. In the West, rent growth is moderating, and several markets are nearing peak vacancy levels. Denver, the Central Valley and Portland all saw flat vacancy rates month-over-month but significant increases year-over-year—Denver reaching 13.4%, the highest among major U.S. markets. In contrast, Midwestern metros such as Minneapolis–St. Paul, Cincinnati and Indianapolis are picking up construction momentum, supported by lower costs and improving financing conditions. Greater Chicago maintains the region’s largest pipeline at 11.3 million square feet.

In the South, development continues, but only Houston, Nashville and Atlanta posted vacancy rates below the national average. Charlotte and Miami saw the region’s sharpest year-over-year vacancy increases. In the Northeast, New Jersey and Boston remain tight yet costly, with average rents at $12.12 and $11.52 per square foot, respectively.

Source: GlobeSt