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

By Majid Radaei, RadCRE · · Market Updates

Last-mile distribution centers are seeing sustained demand, with industrial cap rates compressing further as institutional capital chases e-commerce growth. Q4 2025 industrial cap rates averaged 5.3% per JLL, a 20 bps drop YoY.

Last-Mile Logistics Boom Continues: Cap Rates Compress Amid Robust E-commerce Demand

The insatiable demand for rapid delivery services continues to fuel an unprecedented boom in the last-mile logistics sector, driving significant investment and further compression of cap rates across the industrial real estate landscape. Despite broader economic headwinds, e-commerce penetration and evolving consumer expectations for expedited shipping have solidified the last-mile distribution center as a bedrock asset class for institutional investors.

Market Dynamics and Cap Rate Compression

According to JLL's latest Industrial Outlook, the national average cap rate for industrial properties compressed to approximately 5.3% in Q4 2025, a notable decrease from 5.5% a year prior. This compression is even more pronounced in prime last-mile facilities located in major metropolitan areas, where some core stabilized assets have traded below 4.0%. For instance, in Q3 2025, BentallGreenOak acquired a portfolio of urban logistics assets in the Inland Empire and Dallas-Fort Worth markets for an undisclosed sum, with market speculation placing the cap rates for the most strategically located facilities firmly in the low-4% range, reflecting intense competition.

Vacancy rates for industrial properties, particularly in urban infill locations critical for last-mile delivery, remain historically low. CoStar Group reported a national industrial vacancy rate of 4.1% as of Q1 2026, with key last-mile markets like Northern New Jersey (<3.0%) and Los Angeles (<2.5%) demonstrating even tighter conditions. This imbalance between supply and demand, coupled with persistent rent growth—which averaged 8.5% nationally year-over-year according to CBRE Research for Q4 2025—is underpinning investor confidence and driving aggressive pricing.

Increased Investment and Development

Major players like Prologis and Blackstone remain highly active, demonstrating continued conviction in the sector. Prologis recently announced plans to develop an additional 15 million square feet of logistics space globally in 2026, with a significant portion allocated to urban infill and last-mile focused projects. Similarly, Blackstone's industrial platform, Link Logistics, continues to expand its vast portfolio, often through strategic acquisitions of single assets and smaller portfolios that align with last-mile network optimization. A recent example is Link Logistics' acquisition of a 300,000 square foot distribution center in Phoenix from a private seller in Q1 2026, reportedly closing at a sub-4.5% cap rate.

The influx of capital is not limited to mega-funds. Family offices and smaller private equity firms are increasingly targeting last-mile assets, recognizing the long-term demographic and technological trends supporting the sector. This broad investor base contributes to the robust bidding environment, further compressing yields.

Building Resilience and Future Outlook

The perceived resilience of industrial logistics, particularly last-mile, stems from its direct linkage to consumer spending and the ongoing digital transformation of retail. While construction pipelines remain robust in some markets, rising construction costs and lengthy entitlement processes in urban cores act as natural barriers to entry, helping to maintain supply-demand equilibrium for premium last-mile locations.

RadCRE Perspective

“The last-mile industrial sector continues to be a darling for good reason, but investors must exercise extreme discipline,” notes Majid Radaei, Founder of RAD Commercial Realty. “We are seeing cap rates for premier, urban infill facilities dip below 4%, and in some cases approaching 3.5%, particularly on long-term net-leased assets to credit tenants. While the rental growth prospects are undeniable, achieving these aggressive cap rates means you are betting heavily on continued exponential rent appreciation and minimal vacancy. Our analysis at RadCRE suggests that while this sector will remain strong, the margin for error is shrinking. We’re advising clients to focus on true irreplaceable locations with strong population density and multiple access points, rather than simply chasing yield compression. The financing landscape for these deals is also evolving; bridge lenders are still active, but permanent debt at these price points requires exceptional property fundamentals and tenant quality to attract the most competitive agency or CMBS rates. We help our clients structure capital stacks that both capitalize on this demand while mitigating the inherent risks of ultra-low cap rates.”

RadCRE continues to advise clients on strategic acquisitions and dispositions within the industrial sector, leveraging our deep market insights and institutional-grade underwriting capabilities to identify value and optimize capital structures for last-mile assets.

Tags: last-mile logistics, industrial real estate, cap rate compression, e-commerce demand, commercial real estate investment, RadCRE, industrial financing

Sources: JLL Industrial Outlook Q4 2025, CoStar Group Q1 2026, CBRE Research Q4 2025, Prologis Investor Relations, Link Logistics press releases