Market Trends Drive Strategic Value for Multi-Tenant Shallow-Bay Industrial Assets

By Robin Stolberg, Executive Director of Acquisitions

While institutional investors have historically gravitated toward big-box industrial logistics assets, multi-tenant shallow-bay properties represent an increasingly compelling investment opportunity. These often-overlooked assets—which range from 25,000 to 150,000 square feet and are located in “A” locations—offer unique investment advantages that deserve consideration.

Irreplaceable locations and diminishing supply underpin shallow-bay property value

One key advantage inherent in shallow-bay properties is their attractive premium irreplaceable locations. These buildings were typically constructed in the 1970s through the 2000s. When these buildings were originally built, the areas surrounding them were on the fringe of urban areas where land costs were relatively low. Urban spread means these assets sit in prime infill positions within dense population centers. This advantage cannot be replicated by new development, creating a high barrier to entry.

What’s more, there has been limited new construction of multi-tenant shallow-bay buildings since the late 1990s, as the overall industrial logistics market saw record new development focused on big-box cost-efficient construction. Finally, much of the older stock of shallow-bay properties has seen redevelopment into other uses such as data centers, retail, or industrial logistics. As a result, the already stagnant supply of buildings continues to diminish.

A diverse, stable tenant base creates consistent tenant demand and steady cash flow

Shallow-bay industrial properties attract companies across a wide range of categories, including construction, logistics and distribution, consumer products, retail, professional and business services, food and beverage, health, and more. Importantly, these tenants are local, regional and often even national. This broad appeal generates strategic advantages of owning and operating these assets:

• Natural diversification: Multiple tenants in a building or business park provide a range of industries to spread occupancy and cash flow risk.
• Local market connection: Tenants want to be near urban population centers and labor pools, and they are prepared to pay rent premiums for these benefits.
• Embedded tenant growth: As shallow-bay tenants grow, they look to the current owner of their building or business park first when they require additional space.
• Ability to reposition rents as the market changes: Shallow-bay tenants generally want shorter lease terms of three to five years, compared to industrial logistics tenants who sign seven- to twelve-year leases, allowing an owner to reposition rents as the market changes every few years.

Operational benefits of shallow-bay industrial assets

Multi-tenant shallow-bay industrial buildings are known to be management intensive compared to larger single-tenant properties. With the right experienced operator and team at the helm, shallow-bay assets can be efficient to operate. Capital and operating expenses tend to be lower than modern spaces. Further, individual unit turnover costs such as tenant improvements and leasing commissions are significantly less than for office space.

In conclusion, given the short supply of shallow-bay properties—representing only about 20% of the industrial market—vacancy rates are consistently low, with very little volatility. In fact, research shows that demand has remained stable over the past decade or longer. This is further supported by data demonstrating that shallow-bay properties historically lease faster than the overall industrial sector because these tenants can move into new space quickly, multi-tenant shallow bay industrial assets are in diminishing supply, and demand remains steady. All these factors contribute to an investment strategy of owning and operating these often overlooked assets.