Small-Bay vs. Big-Box Industrial: What the Narrowing Vacancy Gap Means for Tenants and Operators in 2026
Key Takeaways
- Vacancy in U.S. industrial buildings over 500,000 SF has fallen 300 basis points from its late-2024 peak to 8.1%, per Cushman & Wakefield’s Q2 2026 U.S. Industrial MarketBeat.
- Shallow-bay vacancy edged modestly higher to 4.8%, still the lowest of any size segment.
- The gap has narrowed to about 330 basis points because big-box is improving. Small-bay remains far tighter.
- New small-bay supply stays thin. CBRE counts more than 80% of shallow-bay inventory as built before 2000.
Through 2024, industrial real estate behaved like two markets. A wave of new big-box distribution space delivered and big-box vacancy climbed, while small-bay space stayed scarce. In 2026 the two are converging from the big-box side.
Cushman & Wakefield’s Q2 2026 U.S. Industrial MarketBeat shows the shift. Vacancy in buildings larger than 500,000 SF has declined 300 basis points from its late-2024 peak to 8.1%. Shallow-bay vacancy edged modestly higher to 4.8%, still the lowest of any size segment. National vacancy fell 10 basis points to 6.9%.
An earlier version of this article, written on older data, described the gap as widening. The Q2 2026 figures show it narrowing to about 330 basis points as big-box space leases up. Small bay industrial vacancy is still the lowest in the market.
The Numbers: Big-Box Is Recovering, and Shallow-Bay Is Still Tightest
The table sets C&W’s size split against its national figures for Q2 2026.
| Metric | Q2 2026 | Change or note |
|---|---|---|
| Shallow-bay vacancy | 4.8% | Edged modestly higher; lowest of any size segment |
| Big-box vacancy (buildings over 500,000 SF) | 8.1% | ↓300 bps from late-2024 peak |
| Gap, big-box minus shallow-bay | 330 bps | Narrowing, as big-box vacancy falls |
| National vacancy, all sizes | 6.9% | ↓10 bps from 7.0% in Q1 2026 |
| National asking rent ($/SF/yr NNN) | $10.32 | +2.9% YoY |
| Net absorption | 62.1M SF | +21% QoQ; 113.6M SF year to date |
| Completions | 62M SF | 119M SF in the first half, nearly 20% below a year earlier |
| Under construction | 305.1M SF | +18% YoY; fourth straight quarterly increase |
Source: Cushman & Wakefield, U.S. Industrial MarketBeat Q2 2026 and Q2 2026 national press release (July 17, 2026). C&W marks Q2 figures preliminary. Q1 2026 vacancy as shown in the Q2 report. The 330 bps gap is a WareCRE calculation.
C&W’s Q2 2026 MarketBeat does not state the size range behind its shallow-bay figure. In its February 2025 study Smaller Warehouse, Bigger Performance, C&W described shallow-bay multitenant warehouses as buildings under 150,000 SF that commonly offer spaces of 5,000 to 50,000 SF. CBRE uses a narrower definition, buildings under 50,000 SF with clear heights of 14 to 28 feet. Each figure here carries its source, since the series are not interchangeable.
Why the Gap Is Narrowing: Large-Format Space Is Leasing Up
C&W credits leasing by third-party logistics providers and manufacturers for the drop in large-format vacancy. Those two groups accounted for more than 55% of U.S. leasing activity in the first half of 2026.
Warehouses completed since 2020 absorbed 137 million SF in the first half, and facilities over 500,000 SF accounted for nearly half of that. Supply has also eased, and in Q2 net absorption of 62.1 million SF matched the 62 million SF of completions.
Our Dallas-Fort Worth industrial market report shows the same pattern at the metro level. C&W reports that vacancy in DFW big-box buildings over 500,000 SF has tightened to its lowest level since 2022. Mid-size buildings of 150,000 to 499,999 SF are the only size segment still above 10.0% vacancy, because recent deliveries are still leasing up.
On the small-bay side, the modest rise in vacancy shows up in soft pockets, as our Charlotte industrial market report details. Matthews, citing CoStar data, reports 5.5% vacancy for Charlotte buildings under 125,000 SF, well below the 9.8% rate for all sizes. The segment also posted negative absorption of 295,000 SF in Q2 2026. Matthews reads that, along with increased concessions, as a sign occupiers have gained negotiating leverage.
Why So Little Small-Bay Space Gets Built
Small-bay stays tight because its supply barely grows. In a March 2026 brief, CBRE found that nearly half of shallow-bay inventory was built before 1980 and more than 80% before 2000. It adds that properties built since 2010 account for only 5% of total inventory. CBRE says rising construction costs, higher land prices in urban locations and tenant preferences for modern amenities have limited most new projects to larger big-box warehouses.
Development economics push the same way. A single-tenant distribution building means one lease, one tenant improvement package and financing lenders know well. A multi-tenant project on the same land means dozens of leases, separate buildouts, demising walls, utility metering and heavier management. Small-bay space usually earns more rent per square foot, yet most developers still choose big-box.
With few new units arriving, shallow-bay can absorb a modest rise in vacancy and remain the tightest segment in the market.
Who Leases Small-Bay Space
C&W describes shallow-bay tenants as smaller local or regional businesses, commonly leasing 5,000 to 50,000 SF on three- to five-year terms. CBRE points to service-oriented users, last-mile distribution and small and mid-sized businesses that serve local economies. In practice that means contractors and trades, e-commerce sellers, food producers, light manufacturers and local distributors, whose needs track local activity.
Big-box tenants behave differently. National retailers, 3PLs and manufacturers plan their networks centrally, so they consolidate or sublease large blocks when demand softens and expand quickly when it recovers. That helps explain why big-box vacancy swings more than small-bay in both directions.
Looking for small-bay warehouse space?
Browse Warehouse ListingsWhat the Gap Means for Tenants
The 6.9% national vacancy rate overstates how much small-unit space is available. If you need a few thousand square feet, expect fewer options than the headline suggests and be ready to widen your search.
Small units also cost more per square foot. In Calgary, C&W reports spaces under 25,000 SF asking C$13.55/SF/yr, against C$10.46 for spaces over 100,000 SF. Units under 25,000 SF also made up the vast majority of Q2 2026 transactions there, as our Calgary industrial market report notes.
Our San Diego industrial market report shows a similar spread. C&W’s incubator multi-tenant/flex category there is 6.8% vacant and asks $1.73/SF/mo NNN, compared with 9.8% vacancy and $1.29 for warehouse/distribution space.
For Tenants
Price the two segments separately. Large requirements face tighter conditions than at the late-2024 peak, so start big-box searches early. Small-unit users face the tightest segment overall, though soft pockets such as Charlotte give occupiers more room to negotiate. Most warehouse leases are triple-net, so compare total occupancy cost, including taxes, insurance and maintenance, rather than base rent alone.
Co-warehousing suits short commitments. If a three- to five-year lease is more than you need, co-warehousing operators offer month-to-month or short-term units, usually at a higher cost per square foot.
Check local data before you tour. WareCRE publishes free reports for 28 U.S. and Canadian metros, all on Q2 2026 data, through the Industrial Market Intelligence Hub.
What the Gap Means for Owners and Operators
Small-bay owners still hold the stronger position, with the lowest vacancy of any size segment and scarce new supply. The modest rise in vacancy and pockets of negative absorption, as in Charlotte, argue for tracking concessions submarket by submarket.
The case for converting big-box buildings is weaker than it was. In 2024, converting half-empty distribution buildings into multi-tenant units looked compelling. With big-box vacancy down 300 basis points from its peak, more of those buildings can now lease as they are. Conversion still makes sense for obsolete buildings or infill sites with deep small-business demand.
For Operators
Older stock is the opportunity. Because so little new small-bay space gets built, owners who upgrade power, loading, lighting and unit layouts can win tenants who would otherwise wait for new product.
Outlook: Big-Box Should Keep Closing the Gap
C&W expects national vacancy to decline modestly in the second half of 2026. Jason Price, its head of Logistics & Industrial Research Americas, expects the decline to be “led by modern logistics product and large-format distribution facilities.” If shallow-bay holds near 4.8% while that happens, the gap narrows further.
Big-box supply. The pipeline has risen for four straight quarters to 305.1 million SF, and speculative construction rose 11% on the quarter. C&W says the pipeline remains significantly below its peak. A faster rise in speculative big-box starts would slow the large-format recovery.
Shallow-bay vacancy. Watch whether it keeps edging up from 4.8%. New projects are still mostly big-box, so a further rise would point to softer small-business demand.
CBRE expects that “the combination of limited supply and steady tenant demand will likely keep shallow-bay fundamentals relatively tight across many U.S. markets.” Small-bay remains the tightest segment in industrial. What changed in 2026 is that big-box is catching up.
Find small-bay and flexible warehouse space
Browse co-warehousing, small-bay, and distribution listings with real pricing and direct operator contact.
Search Warehouse ListingsData sources: Cushman & Wakefield U.S. Industrial MarketBeat Q2 2026 and national press release, July 17, 2026 (figures preliminary; rents $/SF/yr NNN); Cushman & Wakefield, Smaller Warehouse, Bigger Performance, February 2025; CBRE shallow-bay industrial brief, March 24, 2026; Cushman & Wakefield Q2 2026 Industrial MarketBeats for Dallas/Fort Worth, San Diego ($/SF/mo NNN) and Calgary (C$); Matthews Charlotte Industrial Market Report Q2 2026, citing CoStar data. The 330 bps gap is a WareCRE calculation.
Related Resources
Frequently Asked Questions
What is the vacancy rate for small-bay industrial space?
Cushman & Wakefield put U.S. shallow-bay vacancy at 4.8% in Q2 2026, the lowest of any size segment, after a modest rise. National industrial vacancy across all sizes was 6.9%. C&W’s Q2 report does not state the size range behind its shallow-bay figure. CBRE defines shallow-bay as buildings under 50,000 SF with clear heights of 14 to 28 feet.
Is the gap between small-bay and big-box vacancy widening or narrowing?
It is narrowing. Cushman & Wakefield reports that vacancy in buildings over 500,000 SF has fallen 300 basis points from its late-2024 peak to 8.1%, while shallow-bay vacancy edged modestly higher to 4.8%. That leaves a gap of about 330 basis points. Big-box is the improving segment, and small-bay is still the tighter one.
Why is so little small-bay industrial space built?
CBRE found that nearly half of shallow-bay inventory was built before 1980 and more than 80% before 2000, and says properties built since 2010 account for only 5% of total inventory. It cites rising construction costs, higher land prices in urban locations and tenant preferences for modern amenities, which have steered most new projects to big-box warehouses.
What does the vacancy gap mean for tenants looking for small warehouse space?
Expect fewer options and higher rents per square foot than for large blocks. In Calgary, Cushman & Wakefield reports spaces under 25,000 SF asking C$13.55/SF/yr, against C$10.46 for spaces over 100,000 SF. Move quickly on suitable units, compare total NNN occupancy costs, and consider co-warehousing for shorter commitments.
