At first glance, small-bay industrial and self-storage centers look almost identical – low-rise boxes lined up along a highway, quietly collecting rent. But the similarities end there. The two sectors serve very different customers and are reacting in very different ways to today’s economy.
Small-bay industrial centers, or “flex space,” cater mainly to tradespeople and local entrepreneurs who need room to build, repair, or distribute goods. Self-storage, on the other hand, caters to households, students, and small businesses looking to stash belongings temporarily. Those contrasting users – and the cash flow patterns they create – are driving an increasingly wide gap in performance, financing, and investor appetite.
Who’s Renting Drives the Difference
Demand for small warehouse space rises and falls with the fortunes of local business owners. In cities like Denver, brokers report that many entrepreneurs are struggling with higher taxes, rising insurance costs, and economic uncertainty – all of which make it harder to launch or expand a business. When that small-business segment slows, leasing activity drops and vacancies linger, creating more ups and downs than many investors expect.
Self-storage tells a different story. Its customer base is broader and more stable, covering everything from people moving or downsizing to students between semesters or small firms managing inventory. Yet even this market is shifting. As one investor notes, new alternatives such as driveway containers, trailer-based storage apps, and warehouse-style “storage condos” are chipping away at traditional demand. In some areas, these substitutes mean the next potential customer may never visit a conventional self-storage facility at all.
Design and Comfort Are Changing the Game
In both sectors, design and usability are becoming competitive advantages. Developers of small warehouse space are rethinking how these buildings should look and function. In Central Texas, builder Alec McElhinny says the old image of plain metal boxes in back lots no longer applies. His new projects along I-35 feature storefront-style facades, large windows, and full HVAC systems – features that attract tenants who want both functionality and visibility. Those design upgrades also support higher rents and draw a broader mix of users, from tradespeople to small e-commerce operators.
Self-storage has followed a similar evolution. A decade ago, most facilities were little more than rows of corrugated-metal garages – bare concrete floors, unheated units, minimal lighting, and chain-link gates. Today, many of the new and renovated properties look more like modern service centers than back-lot storage yards. Multistory, climate-controlled buildings feature polished lobbies, bright interiors, and digital access systems.
National operators and real estate investment trusts have led this shift, upgrading facilities to attract a broader customer base, justify higher rents, and stand out in a market in which technology and convenience increasingly drive decisions. They’ve paired high-end design with data-driven pricing and management platforms. The result is a product that feels safer and more professional for customers – and more appealing to lenders and institutional investors.
Who’s Investing and What They’re Looking For
Investor interest in the two sectors is moving in different directions. In self-storage, the largest investments now come from institutional players – publicly traded REITs and national operators – focused on modern, climate-controlled facilities that deliver consistent income and require little hands-on oversight. These properties attract more capital because they fit easily into large portfolios and are viewed as lower risk. Smaller investors remain active but tend to pursue older, drive-up facilities where improvements in design, technology, or management can lift returns. Those investments carry more uncertainty but can outperform when executed effectively.
Investment in small warehouse space is more varied. Private syndicators, entrepreneurial operators, and family offices all remain active, though deals are adjusting to reflect today’s higher financing costs. In markets like Denver, investors are finding opportunities in price resets and mild distress – tough news for current owners but a chance for new investors who believe in the long-term strength of small business demand.
How Each Sector Creates Value
Each of these sectors creates additional value in its own way. In small warehouses, tenants rely on the space to run their businesses, so practical details have a direct impact on value. Unlike self-storage customers, who may only visit occasionally, these renters need good lighting, ventilation, and access every day.
Developer Alec McElhinny says he installs HVAC in every unit not just for comfort but because tenants see it as essential. Other features, such as well-placed doors, shallow bay depths that fit delivery vans, and storefront-style visibility, help owners attract reliable tenants and sustain steady income.
In self-storage, performance depends less on physical upgrades and more on technology. Operators now rely on sophisticated pricing tools, data analytics, and online marketing systems to attract customers and adjust rates in real time. Larger companies have these capabilities built in, while smaller owners often struggle to keep up.
Local conditions also shape performance. In a college town, storage demand peaks and drops with the academic calendar; in a lake region, it tracks with boating season; in suburban areas where people rely on app-based trailer storage, traditional facilities may fill units more slowly. Successful investors recognize those micro-differences and tailor their projections accordingly.
Location and Local Approval
For small warehouse projects, zoning remains one of the biggest hurdles. Developers often struggle to find sites where this kind of space is allowed close to residential or retail areas. In Central Texas, Alec McElhinny addresses that challenge by focusing on towns just outside major cities, where approvals move faster and local officials are more receptive. He also designs his buildings with retail-style facades so they blend better along busy commercial corridors – a visual approach that makes permitting easier and leasing faster.
Self-storage faces a different kind of local challenge: perception. Many communities still picture the old version of storage – rows of metal garages behind a fence – and push back against new proposals. Developer Dan Waldman says today’s facilities, which he calls “hotels for stuff,” are helping to change that image. Modern buildings feature polished exteriors, strong security, landscaping, and automated systems that make them feel cleaner and safer. Those design choices not only improve returns but also help projects win approval.
Adapting Investment Strategies
Investor strategies for 2025 vary sharply between the two sectors. In small warehouse and flex properties, investors should focus on the staying power of their tenants, not just comparable rents. As broker Aviva Sonenreich notes, factors such as taxes, insurance, and tariffs are slowing decision-making for many small businesses, making tenant resilience a more reliable indicator of stability.
Spending on the features tenants notice – air conditioning, storefront visibility, power access, and van-friendly layouts – can pay off through stronger retention and higher rent. Equally important is choosing jurisdictions that move quickly on approvals; a smoother permitting process reduces risk and keeps projects on schedule.
In self-storage, investors need to think broadly about competition. Before using population figures to gauge demand, they should consider what substitutes are available, such as driveway containers, storage condominiums, and app-based trailer storage, all of which can siphon off customers. Properties built or upgraded to institutional standards early tend to attract more favorable financing and draw a wider pool of future buyers. Technology plays a decisive role: data analytics and dynamic pricing systems are now fundamental to performance, and owners without these tools risk falling behind.
The boxes may look simple, but the dynamics are anything but. In small warehouse properties, design and location drive success. In self-storage, data and scale determine who wins. Investors who understand the real end user – whether a tradesperson running a business or a household in transition – will be best positioned to navigate the next cycle.
