BKM Capital Partners’ Q3 2026 white paper, “The Missing Middle: Making Sense of Mid-Bay Industrial,

Newport Beach, CA  Industrial real estate has a well-understood top and bottom. The million-square-foot distribution box and the small-bay flex unit are both tracked, benchmarked and widely traded. The range in between is neither, and it is where a large share of American manufacturers, distributors and regional suppliers actually operate. That gap is the subject of “The Missing Middle: Making Sense of Mid-Bay Industrial,” released today by BKM Capital Partners, a leading fund manager and operator of small- and mid-bay light industrial properties, as the latest installment in its BKM Intel Thought Leadership Series.

The paper’s central claim is that mid-bay has resisted definition because the industry keeps defining it by building size, when what distinguishes it is the size and functionality of the individual suites inside. BKM’s framework describes mid-bay business parks as generally totaling 200,000 to 500,000 s/f with buildings between 100,000 and 200,000 s/f, along with suites of roughly 15,000 to 75,000 s/f and the tightest supply below 30,000.

“Ask ten people in this business to define mid-bay and you will get ten answers, and it’s not because they’re unfamiliar with the segment,” said Brian Malliet, BKM’s founder, CEO and CIO. “It’s because size alone doesn’t describe it. What makes a building mid-bay is how it’s cut up, how it loads, how much power it carries and who can actually operate in it. Until the industry defines it that way, it can’t be measured, and what can’t be measured is hard to price.”

The paper ties the segment’s relevance to a shift among the businesses that occupy it. Small businesses account for 99.9% of U.S. companies and roughly 46% of private-sector employment. By 2035, 57% of their owners are expected to exit the business, handing $5 trillion in enterprise value to a generation more willing to invest in automation and more demanding of its buildings.

“You can hear the change in what tenants ask about,” said Mason Waite, BKM’s partner and managing director of asset and portfolio management. “Five years ago the first question was clear height and dock doors. Now it’s how much power comes into the building, whether the panel can carry another line of equipment and how quickly we can get it done. These are businesses putting real money into their operations, and the building has to keep up.”

The more durable constraint is physical. Modern bulk warehouses are built around deep footprints that cannot be carved into functional smaller suites without compromising loading, parking and circulation. A landlord can divide a big box for a 100,000 s/f tenant. Doing it for a 20,000 s/f user rarely works.

Among the paper’s findings:

• New supply is not keeping pace. Construction underway equals 2.3% of existing mid-bay stock, against 3.0% for buildings over 200,000 s/f, and mid-bay inventory has grown 26% since 2020 versus 41% for large-format facilities.

• Tenants are paying up for the format. Average asking rents run roughly $9.24 per s/f for mid-bay product, compared with $7.38 for buildings over 200,000 s/f, a premium of about 25%.

• Institutional capital is rotating in. Institutional buyers’ share of mid-bay transactions rose 44% year over year, while the private-buyer share declined 14%.

• Manufacturing demand has more than doubled. Manufacturing now accounts for 17.1% of all industrial tenant requirements, up from less than half that share in 2020.

“Mid-bay is big enough to attract institutional capital and operationally demanding enough that most of it never arrives,” said Brett Turner, BKM’s senior managing director of acquisitions & dispositions. “A single-tenant box is one lease and one relationship. A mid-bay park is a dozen leases, a dozen build-outs and renewals coming due every year. That work is the barrier to entry, and it is also where the return comes from.”

The paper closes with a case study of Pacific Business Center, a Las Vegas property BKM acquired in 2019 and reconfigured by subdividing larger spaces into 15 additional units. Through BKM’s hold, park maintained approximately 98% average occupancy, roughly 90% lease renewals and just over one month of average downtime on vacant suites. Over a five-year period, the property’s lease rates increased approximately 84% and net operating income approximately 85%.