Last-Mile Logistics Outperform: Cap Rates Compress Amid E-commerce Boom

By Majid Radaei, RadCRE · · Industry Insights

Analyzing the Q1 2026 industrial market, last-mile distribution centers continue to see cap rate compression, with Class A assets trading below 4.5% due to sustained e-commerce demand.

The Unyielding Demand for Last-Mile Logistics

The industrial sector continues its reign as a top-performing asset class in commercial real estate, primarily driven by the insatiable demand for e-commerce and the critical role of last-mile distribution centers. While broader commercial real estate sectors have grappled with economic uncertainty and rising interest rates, logistics properties, particularly those serving urban population centers, maintain strong investor appetite. This trend, consistent since the pandemic's acceleration of online retail, shows no signs of abating as retailers and third-party logistics (3PL) providers strive for increasingly efficient delivery networks.

According to recent reports from CBRE and JLL, vacancy rates for industrial properties, especially infill last-mile facilities, remain historically low. For instance, Q1 2026 data indicates national industrial vacancy rates hovered around 4.5%, with key last-mile markets such as Southern California (e.g., Inland Empire) and New Jersey recording even tighter figures, often below 3%. This scarcity, coupled with rising construction costs and land prices in urban cores, fuels competitive bidding for existing, well-located assets.

Cap Rate Compression Persists for Prime Assets

The robust demand translates directly into continued cap rate compression for last-mile distribution centers, even as the broader investment sales market faces adjustment. While overall industrial cap rates have seen some modest upward pressure in secondary and tertiary markets over the past year, prime, Class A last-mile assets in core markets are demonstrating remarkable resilience. Real Capital Analytics data from early 2026 confirms that trophy last-mile facilities are consistently trading with cap rates in the sub-4.5% range, and in some instances, even below 4.0% for exceptional properties in supply-constrained areas.

For example, in a notable Q4 2025 transaction, Prologis acquired a 200,000 square foot state-of-the-art last-mile facility in the Dallas-Fort Worth metroplex for approximately $70 million, reflecting an estimated cap rate of 4.2%. Similarly, Blackstone's industrial platform, Link Logistics Real Estate, continues to be an active buyer, recently closing on a portfolio of infill properties across the Northeast, reportedly at blended cap rates in the 4.3%-4.6% range. These figures stand in stark contrast to the higher cap rates being observed in less critical industrial sub-sectors or in regions with higher lease rollover risk.

RadCRE Perspective

Majid Radaei, Founder of RAD Commercial Realty, notes: "While the narrative of 'industrial exceptionalism' is largely accurate, investors must be discerning. Cap rates under 4.5% for last-mile aren't merely a function of demand; they reflect the incredibly strong underlying fundamentals, long lease terms with credit tenants, and the irreplaceable nature of these locations. What we're seeing isn't irrational exuberance but the market pricing in future rent growth and the operational necessity of these assets for modern commerce. However, careful underwriting is paramount. We advise our clients to scrutinize tenant credit, lease structures, and the true 'last-mile' efficacy of a site. A building labeled 'last-mile' on the periphery of a market isn't the same as one twenty minutes from downtown. Furthermore, while financing costs remain elevated with SOFR around 4.31% and Prime at 8.50%, bridge lenders are still active in the 300-600 bps over SOFR range for well-located industrial. The spread between yield and cost of capital is thin, demanding robust NOI growth to justify these aggressive valuations. This is where RadCRE.ai truly shines, providing institutional-grade sensitivity analyses to de-risk these tight-margin acquisitions."

Outlook: Sustained Performance, Selective Opportunities

The outlook for last-mile distribution remains positive. E-commerce penetration rates continue to climb, driving the need for more localized inventory and quicker delivery times. This structural shift underpins the long-term value proposition of last-mile assets. However, investors are becoming increasingly selective. Factors such as ingress/egress, clear height, bay depths, and proximity to major transportation arteries and population clusters are critical differentiators. While cap rate compression may stabilize somewhat as interest rates fluctuate, prime last-mile facilities are expected to maintain their premium valuations due to their essential role in the modern supply chain.

Tags: last-mile distribution, industrial real estate, cap rate compression, e-commerce logistics, CRE investment sales, RadCRE, Majid Radaei

Sources: CBRE Research, JLL, Real Capital Analytics, CoStar, Prologis investor relations, Blackstone reports