Last-Mile Logistics Thrive: Cap Rates Compress Amid E-commerce Boom
By Majid Radaei, RadCRE · · Industry Insights
Demand for last-mile distribution centers remains robust, driving cap rates down to record lows, with some industrial assets trading below 4% in infill markets, fueled by e-commerce expansion and supply chain reconfigurations.
The Persistent Strength of Last-Mile Industrial
The industrial real estate sector, particularly last-mile distribution centers, continues to exhibit remarkable resilience and growth, defying broader capital markets headwinds in some sub-sectors. Driven by the unrelenting ascent of e-commerce, expedited delivery expectations, and strategic supply chain reconfigurations, investor appetite for well-located logistics assets remains insatiable. This sustained demand is translating directly into significant cap rate compression, especially within core urban and infill markets.
Recent data from major brokerage firms corroborates this trend. According to JLL's Q4 2025 Industrial Market Outlook, national industrial cap rates averaged around 5.2% – a notable compression from pre-pandemic levels. However, for prime, last-mile facilities in major gateway cities, these rates are significantly lower. CoStar reported several recent transactions in core infill markets, such as Southern California's Inland Empire and Northern New Jersey, where newly developed or highly functional last-mile facilities have traded with cap rates approaching or even falling below 4.0%. For instance, a 150,000 sq ft last-mile facility in Edison, NJ, reportedly traded in Q1 2026 for a ~3.8% cap rate, demonstrating the premium investors are willing to pay for irreplaceable locations.
Key Drivers of Compression
Several factors contribute to this persistent cap rate compression:
- E-commerce Penetration: The shift to online retail continues unabated. Consumers now expect next-day or even same-day delivery, necessitating a dense network of smaller, strategically located distribution hubs closer to urban population centers.
- Scarcity of Infill Sites: Developable land in dense demographic areas is inherently limited. This scarcity creates a competitive bidding environment for existing assets and speculative development opportunities, pushing valuations higher.
- Institutional Capital Influx: Major institutional investors, pension funds, and private equity firms globally view industrial logistics as a long-term, low-risk investment with stable income streams and strong rent growth potential. Groups like Blackstone, Prologis, and Brookfield continue to deploy significant capital into the sector, often outbidding smaller players. Blackstone Real Estate, for example, has continued to expand its logistics portfolio, underlining its confidence in the sector's fundamentals.
- Inflation Hedging: Industrial leases, particularly those with annual escalators or market-rate resets, are perceived as a strong hedge against inflation, making them attractive in the current economic climate.
RadCRE Perspective
“The last-mile industrial narrative is absolutely real, and the cap rate compression we're seeing in Tier 1 infill markets is not a fluke – it’s a direct reflection of unprecedented demand meeting genuinely scarce supply. While some might point to the broader industrial market stabilizing, the ‘last mile’ niche carved out by Amazon and others is functionally different. We’re advising clients to scrutinize the true 'last mile' definition; it's not just any distribution center. It's about connectivity to dense populations within minutes, not hours. We're seeing intense competition for these assets, pushing pricing to levels where underwriting requires a sharp pencil on future rent growth projections. Our RadCRE.ai platform is identifying pockets where these growth assumptions are still justified, but also highlighting where some markets are reaching peak valuations. For sellers of truly prime last-mile assets, now is a historically strong liquidation window. For buyers, the focus must be on core-plus or value-add plays where you can enhance utility or force appreciation, because simple yield plays are getting harder to pencil with these compressed cap rates, especially when considering today's SOFR-based lending environment where bridge loans are SOFR + 300-600 bps and even agency debt requires a healthy spread over treasuries.”
— Majid Radaei, Founder of RAD Commercial Realty
Market Outlook and RadCRE's Role
While interest rate uncertainty has impacted transaction volumes across some CRE sectors, the last-mile industrial segment continues to attract robust capital. The flight to quality and necessity-driven demand ensures its preferred status among investors. RadCRE continues to advise clients on navigating this highly competitive landscape, identifying strategic acquisition opportunities, and structuring optimal capital stacks for industrial assets, leveraging our deep market insights and lending relationships to secure competitive financing solutions, from conventional to SBA 504 loans for owner-users, and sophisticated CMBS or bridge financing for institutional plays.
Tags: commercial real estate, last-mile distribution, industrial real estate, cap rate compression, e-commerce impact, CRE capital markets
Sources: JLL Research, CoStar, Commercial Observer, CBRE Research