Last-Mile Logistics Fuel Cap Rate Compression Amid E-Commerce Boom

By Majid Radaei, RadCRE · · Market Updates

Despite economic headwinds, last-mile distribution centers continue to command aggressive cap rates, averaging 4.5% in Q4 2025, driven by insatiable e-commerce demand and limited supply.

The Persistent Demand for Last-Mile Distribution

The industrial real estate sector, particularly last-mile distribution centers, remains a beacon of strength in the broader commercial real estate landscape. The ongoing structural shift towards e-commerce, accelerated by the pandemic, continues to fuel an insatiable demand for facilities strategically located near dense population centers. These properties, crucial for optimizing delivery times and reducing transportation costs, are experiencing unique market dynamics that set them apart from other asset classes.

According to recent reports from CoStar and CBRE, vacancy rates for industrial properties, especially those well-suited for last-mile operations, remain historically low in key urban and suburban markets. For instance, the Inland Empire, a perennial hotspot for logistics, reported industrial vacancy rates below 2% in late 2025, significantly contributing to upward pressure on rents and valuations. Markets like Northern New Jersey and infill locations within major metropolitan areas such as Dallas-Fort Worth and Atlanta are seeing similar trends, with strong absorption outpacing new supply.

Cap Rate Compression Continues

Despite rising interest rates and broader market uncertainties, cap rates for prime last-mile industrial assets have shown remarkable resilience, and in some cases, further compression. Institutional investors, recognizing the long-term growth potential and stability of cash flows, are aggressively pursuing these assets. MSCI RCA data indicates that the average cap rate for industrial properties globally stood at approximately 4.5% in Q4 2025, with Class A last-mile assets frequently trading below 4.0% in top-tier markets. For example, a 2025 acquisition by Blackstone in the Phoenix metropolitan area involving a portfolio of logistics facilities reportedly transacted at cap rates in the high 3s.

This persistent compression reflects a flight to quality and necessity. E-commerce giants like Amazon and third-party logistics (3PL) providers are signing long-term leases, often with built-in rent escalators, providing investors with predictable income streams that are highly attractive in volatile economic environments. While some broader industrial segments might see cap rates stabilize or slightly expand, the last-mile niche continues to benefit from its critical role in the modern supply chain. The competitive landscape for these properties means that even smaller, well-located assets are achieving premium valuations.

RadCRE Perspective

"The narrative around industrial cap rates needs nuance. While the broader industrial market has indeed seen some yield expansion, particularly in secondary and tertiary markets, the last-mile segment is a different beast entirely. We're advising clients that this isn't just about e-commerce growth anymore; it's about the fundamental reengineering of supply chains. Proximity to dense populations, robust existing infrastructure, and connectivity to major transportation arteries are non-negotiable for these assets. We're still seeing core last-mile assets in markets like Los Angeles (e.g., Vernon, Commerce) or New York (e.g., Northern New Jersey) trade at cap rates that would make many multifamily or office investors blush, often in the 3.5% to 4.25% range, assuming quality tenancy and long remaining lease terms. The demand isn't just institutional; private equity firms and even high-net-worth individuals are recognizing the defensive nature and recession-resilience of truly irreplaceable last-mile locations. For our clients, it comes down to underwriting the location's enduring value, not just the current tenant's credit. The competition is fierce, requiring creative deal sourcing and swift execution, which is where platforms like RadCRE.ai give our clients an edge in identifying and underwriting these opportunities quickly."

— Majid Radaei, Founder of RAD Commercial Realty

Long-Term Outlook

Looking ahead, the tailwinds for last-mile distribution centers appear strong. While new construction in infill locations remains challenging due to land scarcity and zoning restrictions, technological advancements in automation and urban planning may offer future solutions. Investors are increasingly looking for properties that can accommodate not just traditional warehousing but also advanced robotics, cold storage, and even drone delivery infrastructure. The strategic importance of these facilities ensures that they will continue to be a highly sought-after asset class, maintaining strong pricing power and relatively tight cap rates for the foreseeable future.

Tags: last-mile distribution, industrial real estate, cap rate compression, e-commerce logistics, CRE investment, supply chain finance, RadCRE

Sources: CoStar, CBRE, MSCI RCA, Commercial Observer, GlobeSt