Tenant demand for smaller, more flexible spaces is among the trends identified by Coldwell Banker Commercial (CBC) in its 2026 Outlook Report. Office, industrial and retail landlords have been able to set pricing with few concessions due to limited availability and high demand for smaller spaces.
CBC Senior Vice President and Managing Director Dan Spiegel, SIOR, acknowledges that while there are always regional and sector differences, the lack of development to serve the smaller property niche is a nationwide story.
Sector Snapshots and Strategies
Industrial. Uncertainty over tariffs is driving down demand for large industrial spaces. CBC reports that vacancies in large spaces (≥100,000 square feet) have climbed, while those under 25,000 square feet are moving well and command higher rents. Industrial spaces from 3,000 to 25,000 square feet are in especially short supply, pushing prices higher and allowing landlords to set the terms and choose preferred tenants.
“The need for smaller or divisible ‘last-mile’ space has always existed,” Spiegel says, but we were so focused on satisfying the demand for large high-cube modern distribution facilities that we didn’t build spaces meant to be close to the consumer.”
Investor/Broker Strategy: Explore options to subdivide existing warehouses located inside or near an urban core or surrounded by existing residential, business and infrastructure. Redesign older urban industrial properties that no longer meet “first-mile” warehousing requirements, e.g., obsolete layouts and low clearance heights, into modern small-bay spaces.
Office. In its March CRE Estate Insights Report, NAR writes that while the office market is gradually stabilizing, vacancy remains elevated with widespread concessions.
Large corporations are decentralizing and adopting a regional strategy, reducing the need for large-format space, reports CBC. “Sellers are lowering prices and landlords are giving significant rent reductions to retain tenants,” Spiegel says.
Simultaneously, the expansion of professional services and medical practices has created a demand for smaller spaces (<10,000 square feet), and economic and labor uncertainties are driving employers to seek shorter-term leases for flexible, turnkey office space near consumer amenities to draw workers back into the office. Space meeting this criteria commands higher rents with fewer concessions, reports CBC.
Katie Sentell, CCIM, a broker with Pollock Commercial in Atlanta, sees demand for small offices, including from individuals who don’t want to be in a coworking space like Regus or WeWork, or in home offices. Sentell recently represented a small investor who purchased a 6,000-square-foot office building originally built in the 1980s.
“My client plans to renovate it, creating varying-sized spaces for lease, including one- and two-door offices,” Sentell says. “I don’t think he’s going to have any problem leasing that space.”
Investor/Broker Strategy: Convert large floors into move-in-ready suites. Agree to shorter leases in exchange for limited or no tenant improvement. Offer plug-and-play functionality to align with hybrid workforces and reduce tenants’ upfront costs.
Retail. NAR reports that retail is outperforming other property types in rent growth with relatively low vacancy rates. While vacancies in big-box and mall spaces remain, small retail activity has increased, reports CBC. “Depending on location and permitting restrictions, large retail is most fluid for conversion to other uses, including small industrial,” Spiegel says.
Investor/Broker Strategy: Repurpose space into mixed-use communities to tap into the growth of service-driven retail—fitness, salons, medical, food and beverage—services largely immune to e-commerce-driven shrinkage. Leverage the resilience of grocery-anchored retail, which real estate asset manager KBS describes as a “safe harbor in 2026” and CBC notes has spurred development and boosted property value.
Embrace Your Advisory Role
Spiegel encourages brokers to talk to developer and investor clients about market demand. “When a client says they are looking for retail, there is a tendency to jump in a car and show them available retail to secure the business,” Spiegel says.
“Instead, probe their business goals and challenges; find out what is really motivating them,” advises Spiegel. “The fact that they tell you they need ‘X’ doesn’t necessarily tell you how ‘X’ will solve their business problem,” he adds. “You may find they are open to other strategies, including pursuing the small property niche.”
Source: “Think Small for Big Returns“
