Demand is rising for “shallow-bay properties” in industrial real estate, reflecting the growing need for smaller-format space tied to service-oriented users and last-mile distribution, according to a report from CBRE.

Unlike big-box warehouse properties that have expanded rapidly in recent years, the supply of shallow-bay space has grown only modestly, leaving many markets with aging inventory and limited new construction. CBRE defines shallow-bay space as buildings under 50,000 square feet with clear heights between 14 and 28 feet.

Starting in 2017, shallow-bay vacancy began falling below the overall industrial vacancy rate, reflecting growing demand for smaller-format space tied to service-oriented users and last-mile distribution. This gap widened significantly during the recent development cycle, as new supply was largely concentrated in big-box warehouse development while shallow-bay construction remained limited. By early 2024, shallow-bay vacancy was 2.5 percentage points below the overall industrial vacancy rate, underscoring the limited availability amid sustained demand for these smaller facilities.

By 2025, shallow-bay asking rents were more than 50% higher than 2010 levels, highlighting the durable demand and supply constraints of this segment. The steady increase in rents over this period reflects continued leasing activity and limited available space for smaller occupiers across most markets.

With little new development over the past two decades, shallow-bay industrial inventory in major U.S. markets is heavily concentrated in older facilities. Nearly half of shallow-bay inventory was built prior to 1980 and more than 80% was built before 2000. Properties built since 2010 account for only 5% of total inventory. This aging supply reflects the economic challenges of developing new shallow-bay facilities in major markets, where land costs and zoning constraints often favor larger warehouse developments.

Looking into the future, demand for shallow-bay space remains closely tied to small and mid-sized businesses that serve local economies. While a slowing economy could temper demand in the near term, the limited development pipeline and aging inventory base suggest shallow-bay properties will remain an important and supply-constrained segment of the industrial market.

Amid soaring investment in building the data centers that power artificial intelligence (AI), the third party logistics provider (3PL) Arvato this week said it is further expanding its Data Center Services footprint in the United States with a new logistics hub in Denton, Texas.

Located in the Dallas–Fort Worth metroplex, the facility “significantly increases” its operational capacity to support hyperscalers, cloud providers, and AI infrastructure companies across North America, the firm said.

The facility comprises approximately 270,000 square feet, with an initial 150,000 square feet allocated for operations and substantial room for future expansion. Specialized logistics offerings at the site allow Arvato to manage inbound and outbound flows of sensitive hardware, coordinate complex white-glove deliveries into active and under-construction data centers, and provide high-security warehousing and specialized handling services.

“The U.S. data center market is scaling at unprecedented speed,” Mitat Aydindag, President Tech at Arvato, said in a release. “In AI-driven environments, deployment speed and uptime depend directly on logistics performance. With our new hub in Dallas-Fort Worth, we are expanding a fully integrated U.S. Data Center platform that combines secure warehousing, specialized handling and coordinated last-mile execution. We are building the logistics layer behind next-generation AI infrastructure and enable our clients to scale with precision, security and confidence.”

The expansion comes the same week that DHL announced a similar initiative to address the hyperscaler market, launching a “significant expansion” of its North America data center logistics (DCL) infrastructure with 10 dedicated warehouse sites totaling more than seven million square feet of capacity set to go live in 2026.

The logistics real estate investment firm Realterm has acquired a portfolio of 22 industrial outdoor storage (IOS) and high flow through (HFT) properties for $111 million, saying they “significantly” expand its presence in key transportation and distribution corridors.

Annapolis, Maryland-based Realterm bought the properties totaling 324,903 square feet across some 80 acres from Axis Partners, an Atlanta-based real estate investor focused on supply chain infrastructure properties.

The 22-property portfolio comprises modern and recently renovated IOS, fleet maintenance, and HFT facilities spanning nine states including Alabama, California, Florida, Georgia, Kentucky, Ohio, Tennessee, Texas and Virginia, with concentrations in Atlanta (seven properties), Houston (three properties) and Laredo (four properties). The properties, including 14 maintenance facilities, seven transload buildings and one truck terminal, feature an optimal average building size of 14,800 square feet on approximately 4 acres, providing highly functional space with multiple maintenance bays, transload and warehousing capabilities, expansive outdoor storage areas, secured access and comprehensive site lighting. The portfolio is currently 95% leased.

“The fundamentals driving demand for IOS and HFT facilities in these markets remain strong as freight lanes shift,” Joe Noon, Senior Vice President of Investments, Realterm, said in a release. “We're seeing sustained growth in fleet maintenance and transload logistics that make highly functional, well-located assets such as these increasingly valuable to operators.”

In decades past, a warehouse was simply a large building used for storing goods and materials you didn’t need to access anytime soon. The best place to build these facilities was in rural areas far from cities, where land was cheap and back roads were good enough to support the occasional truck making a delivery.

But today, those facilities are more often known as distribution centers, and they’re located near major highways close to the urban areas in order to support high inventory turnover and enable lightning-fast deliveries to homes and stores. And one more thing has changed: They increasingly need access to large amounts of electrical power to run the automated systems and robotics inside that allow them to operate at such high speeds.

In fact, commercial real estate firm Cushman & Wakefield has pointed to the cost and availability of electrical power as a growing concern for companies seeking sites for modern DCs. Meanwhile, logistics real estate giant Prologis recently boasted of building a DC in the Netherlands that was designed to solve that problem by making and storing much of its own energy on site through a large-scale solar network. In Prologis’ words, “Across the world, companies are running into the same problem: They want to grow—but the power grid can’t keep up. From the U.S. to Europe to Asia, grid congestion has become a barrier to progress, slowing projects that could bring jobs, innovation, and investment to local communities.”

However, even a widescale shift to solar won’t provide nearly enough power to support another type of technology that’s becoming increasingly crucial for warehouse operations—artificial intelligence (AI). Many forecasts for 2026 say that AI will begin to take over large swaths of logistics tasks currently done by company employees, whether it’s answering phones, forecasting inventory needs, or planning delivery routes. To meet the expected demand, major tech companies are rushing to construct the infrastructure that supports AI, which runs on graphical processing unit (GPU) chips inside powerful computer servers located in another kind of DC—the data center. And as we’ve all heard by now, data centers consume staggering amounts of electricity.

If AI expansion comes anywhere close to those projected levels, the estimates for those new power needs are stunning. At a recent trade show in New York held by the enterprise software vendor IFS, speakers said society will need a 50% increase in electrical power production by 2030 to support AI. Another speaker set the bar even higher, projecting that demand for electricity would triple by 2050 when those AI power demands are added to “the electrification of everything,” the term for global decarbonization efforts aimed at switching households, transportation operations, and industry from carbon-based fuels to electricity, according to Sabine Erlinghagen, CEO of Siemens Grid Software.

The limitations of electrical grids are already beginning to slow the development of one kind of DC—the distribution center—and will soon start to restrict the growth of the other type of DC—the data center. In coming years, both of those bottlenecks could have major effects on the entire supply chain industry.