Warehouse real estate is changing

Warehouse Real Estate is Changing

Here’s What Investors Can Do About It

For decades, industrial real estate investment primarily catered to global retailers and logistics giants. In these times, big-box warehouses and distribution centers were a primary focal point for industrial portfolios. 

But times, as they tend to do, change. 

So, this month, Everest Senior Loan Officer Brooke Jacob is going to walk us through the key ways that flex warehousing is gaining traction. We’ll also go over the pros and cons of investing in this asset class, top considerations for investors, and how it stacks up against other commercial property types. 

Let’s ship out!

Here are some more details on these driving forces:

1. Tighter Delivery Deadlines – Last-mile delivery is the most expensive and logistically challenging leg of the supply chain, which makes infill warehouse space near urban centers critical. Smaller flex warehouses provide an ideal solution for businesses that need to shorten delivery times and operate closer to their customers. 
2. Small Business Expansion – Entrepreneurs and mid-size businesses are boosting demand for affordable, adaptable spaces. From local contractors to e-commerce startups to growing regional distributors, these businesses often require facilities under 100,000 square feet. Unfortunately, these locations are currently in short supply—with a vacancy rate of about 3.9%.¹
3. Emerging Industrial Concepts – Recent trends such as fractional and co-warehousing (where multiple businesses share a space) are gaining a lot of traction across the U.S. This directly mirrors the co-working trends we discussed earlier this year. Both of these options offer companies flexible, scalable solutions without long-term commitments. 
4. Industrial Real Estate Shortage – Over the past decade, real estate developers have tended to prioritize large-scale distribution centers. Unfortunately, this leaves small-bay and micro-flex spaces in very short supply. In fact, new construction in this segment of development represents as little as 0.3% of existing industrial stock.²

¹ Ryssdal, Kai, et al. “Growing interest in smaller warehouses.” Marketplace.org, 4 March 2025, https://www.marketplace.org/story/2025/03/04/the-inventory-of-small-warehouses-isnt-meeting-demand. Accessed 2 September 2025 
² Garrison, Steve. “Small-Bay Industrial 2025 Trend Report: Micro-Flex Is Booming.” Personal Warehouses, 5 May 2025, https://personalwarehouse.com/small-bay-industrial-trends-micro-flex-market-booming-2025/. Accessed 2 September 2025.

“This market imbalance is definitely intense at the moment,” says Brooke. “But with that surging demand comes opportunity—a very promising groundwork for industrial investors and developers.”

So what should one consider before investing in flex warehousing? Don’t worry; we’ve got the scoop!

The Pros and Cons of Investing in Flex Warehousing

Like any asset class, small-scale warehousing presents both opportunities and challenges. Let’s go over the basics:

4 Tips for Industrial Investors

“When new demands like this eclipse the market, it can be tempting to just jump on the new opportunities,” Brooke says. “But just like any investment decision, it’s crucial to get all of your ducks in a row first.”

For those considering these trendy assets, several important factors should guide your final decisions:

1. Understand your market niche – Metropolitan areas with high e-commerce penetration are going to have the most opportunity for growth. Sub belt cities, infill coastal markets, and regions with strained supply chains are particularly strong candidates. 

2. Use mindful leasing structure – Aim for a mix of tenants across industries to spread risk. Shorter leases can also offer an upside, but will require more active and experienced asset management. 

3. Keep up with valuation trends – Small-bay industrial spaces have already seen significant cap rate compression—often rivaling multifamily in competitive markets. Analyze spreads carefully and compare them to larger industrial assets in the area. 

4. Know your funding options – Interest rate volatility continues to affect the financing of acquisition and development projects. Be sure to stress-test deals against potential rate hikes when considering different financing solutions. 

5. Partner with experienced operators – Since mixed spaces often feature more diversified and frequent change, it’s advisable to team up with people who can devote time to maintaining tenant relationships and efficiently onboard new leases.

6. Watch those economic trends – Interest rates, construction pipeline statistics, and regional economic policies will all influence the performance of your investments. Time your investments with peak effectiveness by staying attuned to these shifts. 

“The most important thing you can do for your portfolio is to do your research,” says Brooke. “And I don’t just mean researching the initial investment. You should be setting aside regular time to monitor the market and get ahead of potential trends to ensure that you’re in the know.”

Our Final Thoughts on This Topic

We know that change can be difficult, but it’s unavoidable. In a sector defined by rapid fluctuation, those who adapt to the new reality of industrial demand will be best positioned for long-term success. 

“I like to think of every big change as an opportunity,” Brooke says. “Every time you force yourself to adapt to the movement of the market, you give yourself a chance to grow. It can be scary—and honestly, I’d be more concerned if you weren’t a little tense about it. It’s a serious decision! But, by taking that educated leap, you can spring forward into greater long-term success.”

Everest says: When the market moves

we’re ready to spring into action.

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