How to Unlock Yield in Underperforming Small Bay Assets

Small bay industrial assets have been an underappreciated segment of the commercial real estate market for decades. These flexible building structures typically range from 10,000 – 100,000+ s/f, offer the ability to scale individual tenant spaces up or down as needed, making them a staple of the US industrial market. Yet not all small-bay assets deliver the same return potential. Older, legacy-owned assets are often under-managed, requiring a specialized, hands-on approach to unlock value.

Where some see stagnation in small-bay industrial assets, others see untapped potential. With the right operational strategy and a focus on value creation, these overlooked properties can become consistent performers. Unlocking yield starts with a disciplined, hands-on approach.

1 | Start with Mispriced Opportunity

Many older small-bay properties are owned by mom-and-pop operators who have traditionally prioritized long-term stability over maximizing net operating income (NOI). As a result, rents are below market, common area maintenance (CAM) charges are inconsistently recovered, and higher vacancy rates are accepted as a cost of doing business.

This dynamic creates opportunities for yield-oriented investors. Mispricing in these assets is often tied to three primary characteristics: below-market rents relative to comparable properties, inefficient property management, and a clear runway for lease-up within a relatively short time horizon. When these elements converge, there is often significant embedded value that can be realized through strategic operational improvements.

2 | Re-Tenant with Intent

Small-bay tenants are sticky, but not forever. As leases roll, underperforming assets often rely on convenience to retain occupancy, leaving yield on the table.

A more intentional approach to leasing can dramatically improve performance. Attracting higher-quality tenants that align with both local market dynamics and broader national trends, such as last-mile logistics, clean tech services, and e-commerce support, can improve cash flow and tenant retention. Additionally, shorter lease terms should be viewed as opportunities for rent resets, not liabilities. They provide a natural inflection point to bring rents up to market and reevaluate the tenant mix.

Re-tenanting, when done strategically, is less about cycling through occupancy and more about positioning the asset for its highest and best use.

3 | Upgrade Property Management

Property management in the small-bay sector is frequently handled by legacy owners who often lack the operational depth to drive real performance. For institutional-minded investors, this presents another area for value creation.

Bringing property management in-house ensures greater control, consistency, and accountability. Centralized operations also allow for more accurate CAM reconciliation, faster response times to tenant service requests, and more disciplined budgeting.

4 | Think in Clusters, Not One-Off

Small-bay assets are most effective when managed not as one-off buildings, but as part of a portfolio within a defined submarket. Clustering assets geographically enables resource sharing across locations, including maintenance teams, leasing strategies, and marketing efforts. This not only improves operational efficiency and drives down costs but also builds brand presence within a market.

Conclusion

Small-bay industrial assets may not dominate headlines like big-box logistics, but they’re essential infrastructure for the economy. And in a market environment where cap rate compression is no longer a given, yield must be earned through thoughtful execution.

At Lucern Capital Partners, we specialize in turning underperforming small-bay industrial properties into high-performing assets. By combining strategic acquisition, hands-on management, and a focus on tenant alignment, we tap into the unrealized value of small bay real estate. Reach out to a member of our team to learn more about our investment approach.