Key Takeaway:
In 2025, small-scale industrial real estate (under 100,000 SF) is outperforming the broader market, offering real estate investors robust price growth, strong demand, and unique opportunities to buy, lease, and sell for their own accounts. As large-scale construction slows, savvy investors are capitalizing on this thriving niche.
Why Small-Scale Industrial Properties Are the Smart Play in 2025
The industrial real estate market is undergoing a major shift. While large-scale warehouse development has pulled back—new starts for facilities over 100,000 SF have dropped 48% since 2022—small-scale industrial projects are bucking the trend. Through Q3 2025, development starts for properties under 100,000 SF jumped 16% year-over-year, with 340 new facilities breaking ground nationwide.
Investor demand is surging:
- Average sale prices for small-scale industrial assets soared 10.6% year-over-year, far outpacing the 3.5% growth seen in larger properties.
- In hot markets like Miami, industrial rent growth hit 8.9% year-over-year, while cities like Atlanta are seeing new demand from data center and tech tenants.
What’s Fueling the Boom? Key Drivers for Investors
1. Urban Infill & Last-Mile Logistics
E-commerce and same-day delivery are driving demand for smaller, well-located facilities. Urban infill sites are especially prized for their proximity to consumers and flexible layouts, making them ideal for last-mile delivery, light manufacturing, and service businesses.
2. Economic Diversification & Community Revitalization
Small-scale industrial properties help diversify local economies, fill vacant downtown spaces, and create jobs. They’re also at the heart of the “buy local” movement, supporting artisans, makers, and innovative small businesses.
3. Agility & Innovation
Shorter lease terms and a diverse tenant base allow for frequent rent adjustments and quick pivots—key advantages in a changing market. During the pandemic, many small tenants adapted rapidly, even shifting to produce PPE or essential goods.
Investment Returns: Outpacing the Big Boxes
| Metric | Small-Scale (<100K SF) | Large-Scale (>100K SF) |
| Development Starts (Y-O-Y, Q3 2025) | +16% | -48% |
| Average Sale Price Growth (Y-O-Y) | +10.6% | +3.5% |
| Typical Vacancy Rate (2025) | ~3.8% | ~8% |
| Rent Growth (Top Markets) | 8.9% (Miami) | 0.8% |
| Source: Yardi Matrix, CBRE, JLL, 2025 market reports |
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Challenges—and How Investors Are Winning
- Zoning Restrictions: Urban zoning often limits industrial uses. Successful investors are advocating for zoning reform and targeting adaptive reuse projects in commercial corridors.
- Financing Hurdles: Traditional lenders may hesitate on small, value-add projects. Creative solutions—private lending, syndications, and bridge loans—are helping investors close deals and fund renovations.
- Construction Costs: High land and build costs are pushing investors toward adaptive reuse and renovation of existing properties, which can offer faster returns and lower risk.
Strategies for Real Estate Investors
- Diversify Your Portfolio: Acquire multiple small-scale assets across different markets to spread risk and capture local demand.
- Focus on Value-Add: Renovate or repurpose older properties to meet modern tenant needs and boost returns.
- Target Urban Infill: Seek properties in dense, growing areas where last-mile logistics and local manufacturing are in high demand.
- Engage Locally: Work with city officials and community groups to unlock incentives and support neighborhood revitalization.
The Bottom Line: Small-Scale Industrial Is the 2025 Opportunity
For real estate investors who buy, lease, and sell for their own accounts, small-scale industrial real estate offers a compelling mix of growth, resilience, and flexibility. With double-digit price appreciation, strong rent growth, and a wave of new development, this niche is set to deliver superior returns—even as the broader industrial market cools.
Ready to capitalize on the small-scale industrial boom? Now is the time to invest, reposition, and grow your portfolio in this high-demand segment.
