What Makes a Good Small Bay Market
Market selection is one of the highest-leverage decisions in small bay industrial development. Build the right product in the wrong market and you'll chase vacancy and underperform on rent. Build it in the right market and the property stabilizes quickly, stays full, and appreciates as rents grow against limited supply.
The characteristics that define a strong small bay market:
Strong Employment Base in Trade and Services
Small bay demand is driven by the density of trade businesses in a market. A metropolitan area with a large construction industry, significant manufacturing employment, and active service business formation will generate more small bay demand per capita than a market dominated by white-collar employment or government jobs. Look for markets with high concentrations of licensed contractors, auto businesses, and small manufacturers.
Inadequate Quality Supply
Many secondary markets have small bay demand that is being met, poorly, by aging 1960s–1980s stock with low clear heights, inadequate power, and deferred maintenance. These markets have unmet demand for quality product. When existing tenants are paying premiums to stay in substandard space because there's nothing better, it signals a real supply gap that new development can fill.
Land Economics That Support New Construction
Achievable rents must be high enough to support the cost of development on local land prices. Gateway markets (Chicago, Detroit, Columbus) often have land costs that make small bay development difficult to pencil at market rents, the numbers work for big-bay distribution, but the small bay rent premium isn't there. Secondary markets often have lower land costs and similar or better development yields.
Limited Institutional Competition
National developers and institutional capital are generally not focused on secondary small bay markets. The deals are too small, the management too intensive, and the exit pool too narrow for most institutional players. This leaves the market to local and regional operators who have ground-level knowledge and local relationships. Less competition means better site access and less rent compression from overbuilding.
Secondary vs. Gateway Markets
The distinction between secondary and gateway markets is central to the Dymaxion thesis. Gateway markets, Chicago, Detroit proper, Columbus, Indianapolis, have genuine small bay demand, but they also have:
- Higher land costs that compress development spreads
- More institutional developer competition that creates supply when rents rise
- More complex entitlement environments with longer timelines
- Higher construction costs from labor market competition
Secondary markets, regional metros of 100,000–500,000 population, county seats, and mid-sized Midwest cities, often have the same structural demand dynamics (lots of trade businesses, contractors, light manufacturers) with far more favorable supply conditions: cheaper land, less developer competition, simpler entitlements, and often a persistent backlog of unmet tenant demand from tenants who have been waiting for quality space.
The risk in secondary markets is lower absolute liquidity, fewer potential buyers at exit, but the development yield advantage often more than compensates for this, and hold-to-stabilize strategies generate strong cash returns in any case.
The Michigan and Midwest Opportunity
Michigan specifically presents a compelling case for small bay industrial investment. The state has a large, deeply rooted industrial and trade workforce, a legacy of automotive manufacturing that has diversified into a broad base of small-business manufacturing, skilled trades, and service businesses. This trade business density creates persistent small bay demand in markets that are far enough from Detroit to avoid the highest land costs but large enough to have genuine business ecosystems.
Lansing illustrates the pattern: a state capital with a major university, an entrenched trades and contractor base, and almost no new small bay product delivered in the last cycle. Asking rents for new small bay construction in the Lansing metro support $12.00 per square foot NNN underwriting, while older flex product trades well below it. That spread signals unmet demand for functional new space, not overbuilding.
Target secondary markets in Michigan and the broader Midwest include cities with established manufacturing employment, active home construction markets (which drive contractor demand), and limited new industrial supply. Markets near major highway networks benefit from improved supplier access for tenants receiving regular deliveries.
The broader Midwest benefits from population stability, affordable housing costs (which keep trade workers in the market), and a cultural emphasis on skilled trades and manual work that doesn't exist everywhere. Small bay industrial is fundamentally a bet on the local trade economy, and the Midwest's trade economy remains one of the most robust in the country.
How Dymaxion Selects Markets
Dymaxion's market selection process is qualitative and quantitative. Before committing to a new market, we evaluate:
- Existing vacancy and asking rents: We review available CoStar data and engage local industrial brokers to understand the current state of the market. High occupancy at flat or rising rents signals genuine undersupply. Soft markets require stronger conviction on why our product is differentiated.
- Historical absorption: How quickly has new small bay product leased up in this market in the past? Markets where the last new building delivered 10 years ago and was immediately absorbed signal persistent unmet demand.
- Land availability and cost: We survey available industrial land in the target market, review recent land transactions, and model whether development pencils at conservative rent assumptions.
- Competitive landscape: Who else is building small bay in this market? Are institutional developers active? Are there local operators who have proven the product? Knowing the competitive environment helps us understand the entry point.
- Municipal relationships: Entitlement complexity and timeline are significant cost drivers. We favor markets where municipal staff are engaged and pragmatic, permitting timelines are reasonable, and impact fees are manageable.