special relativity - Does space between objects contract?

I had a question, let us assume a coordinate system where there is 2 objects moving at relativistic speeds (at same velocity) for the observer therefore the observer will observe the length contraction being by Lorentz factor $L' = L\sqrt{1-\frac{v^2}{c^2}}$ from the direction of the motion, for this let us assume the objects are moving along an $X$ axis only, now since this completely makes sense and has no valid consequence I can think of, I can begin my logical intuitiveness to ask, the observer will see the distance between 2 objects increase as the object behind the first object will contract. I have illustrated an

basic picture to explain this ever more clearly for those who do not understand my writing:

On other hand even though the observer from the frame of reference of the moving rocket will see the moving object as stationary as they are moving the same velocity so will not see any difference in distance apart from the object even though the observer outside may see the distance increase super-exponentially. This distance surely would take light much longer to cover as the velocity increases as there is no contraction of space between them. Now, the question is even though the observer inside the object will measure no difference in distance among them, he will measure an "slower" speed of light. This surely cannot be true as Special Relativity dictates the $c$ is measured the same regardless of any frame of reference. This is an paradoxical situation but there must be an effect I am not considering that may resolve this apparent "paradox".

Next, I did few research upon this matter and have read the perhaps one of the most notable paradoxes pertaining to Lenght Contraction & Relativistic stress called Bell's spaceship paradox. I have learnt among other things that the distance may not undergo Lorentz contraction.

Perhaps, if space does not undergo Lorentz contraction, then few of the laws of Special Relativity may become invalid so I am very tempted to suggest space also get contracted between these 2 objects, but if space does undergo contraction, this raises an other question.

If space between them does contract, then the light would remain the same which save Special Relativity but also creates a situation in which time would seem equal just as it is in an stationary frame of reference.