Last-Mile Logistics Resurgence & Cap Rate Compression
By Majid Radaei, RadCRE · · Industry Insights
Despite economic headwinds, last-mile distribution centers continue to exhibit robust demand, with cap rates for prime assets compressing to under 4% in key markets like Los Angeles.
Last-Mile Logistics: Sustained Demand Amidst Market Shifts
The industrial real estate sector, particularly the last-mile distribution segment, continues to demonstrate remarkable resilience and robust investor demand, even as broader commercial real estate markets navigate higher interest rates and economic uncertainty. Despite initial concerns about a slowdown in e-commerce post-pandemic, the fundamental shift in consumer buying habits has entrenched the need for efficient final-stage delivery infrastructure.
Recent data from CoStar and MSCI Real Assets (formerly RCA) indicates that while overall industrial transaction volumes have softened from their 2021-2022 peaks, pricing for prime, well-located last-mile assets remains competitive. According to CBRE's Q4 2025 Industrial MarketView, vacancy rates remain historically low in many infill urban markets, driving continued rental growth and investor interest. For instance, the average asking rent for industrial properties in the Inland Empire, a critical logistics hub, increased by approximately 7% year-over-year in Q4 2025, reaching nearly $1.40 per square foot.
Cap Rate Compression Continues for Core Assets
One of the most striking aspects of the last-mile sector has been the continued cap rate compression for high-quality assets, defying the general trend of cap rate expansion seen in other asset classes. In prime, land-constrained urban markets, such as Los Angeles and Northern New Jersey, cap rates for newly developed or fully stabilized last-mile facilities have fallen to levels historically associated with trophy office or multifamily properties. Industrial specialists at JLL reported average cap rates for Class A last-mile facilities in major coastal markets often dipping below 4% in Q3 and Q4 of 2025.
A notable transaction illustrating this trend was Blackstone's acquisition of a portfolio of infill logistics properties from Duke Realty, which included several last-mile facilities near major population centers. While specific cap rates for individual assets are rarely disclosed, industry experts estimated these deals were executed at sub-4.5% cap rates, reflecting the aggressive bidding for irreplaceable locations. Prologis also continues to be an active buyer, strategically expanding its urban logistics footprint, typically targeting strong in-place cash flow and significant future rental upside.
The Rise of AI and Automation in Logistics
Beyond location, the integration of advanced automation and artificial intelligence (AI) is increasingly influencing the design and value proposition of new last-mile facilities. Tenants are prioritizing buildings that can accommodate robotics, automated sorting systems, and enhanced data analytics for inventory management. This emphasis on technological readiness translates into higher valuations and even further cap rate compression for facilities equipped to meet these evolving operational demands.
RadCRE Perspective
"The narrative around last-mile logistics is captivating for its sheer resilience, but smart investors need to differentiate. While headlines trumpet cap rates below 4% in L.A., that's for hyper-specific, irreplaceable assets. Many are chasing perceived last-mile deals that are actually secondary locations with functional obsolescence or lack the clear path to rental growth needed to justify today's pricing. We're advising clients to scrutinize the true 'last mile' — can you get to 80% of a major metro's population within 30 minutes? That's the real value driver. We're also seeing compelling risk-adjusted returns in value-add plays where older industrial stock can be re-positioned for modern automation, rather than just chasing low cap rates on fully stabilized, high-priced assets. The ability to underwrite the operational efficiencies a tenant can achieve within a space is becoming as crucial as the underlying real estate metrics."
— Majid Radaei, Founder of RAD Commercial Realty
Future Outlook
The outlook for last-mile distribution centers remains positive, supported by structural tailwinds from e-commerce growth, supply chain re-optimization, and the increasing premium placed on rapid delivery. While capital markets face headwinds, the long-term fundamentals for well-located, technologically advanced logistics assets are expected to sustain investor demand and maintain relatively tight cap rates, albeit with a keen eye on specific submarket dynamics and tenant quality.
Tags: last-mile logistics, industrial real estate, cap rate compression, commercial real estate trends, RadCRE, e-commerce, distribution centers, industrial investment sales
Sources: CoStar, MSCI Real Assets, CBRE, JLL, Commercial Observer