UK-listed LondonMetric Property has bought a 1.3m sqft portfolio of UK distribution warehouses for £116.6m (€129m) from Cabot Properties.

LondonMetric said the price paid for the 14 warehouses reflected an initial yield on cost of 6.1% and a reversionary yield of 6.6%.

Eleven of the 14 buildings are ‘last mile’, urban logistics warehouses and more than half are located in the South East and Midlands.

Real estate consultancy CBRE said increased investor appetite for last-mile logistics had boosted returns as yields compressed.

The CBRE UK Logistics Index recorded a 5% total return for the first half of the year, up from 4.1% in the previous six-month period and 4.4% in the first half of 2016.

CBRE attributed the increase to capital growth. During the first half of 2017, the income return was unchanged at 2.7%, but capital growth rose from 1.4% to 2.3%.

Andrew Marston, director within the UK research team at CBRE, said: “The superior returns that have come from South Eastern logistics assets, combined with data that suggests stronger performance from assets of less than 300,000sqft, is indicative of investors’ growing appetite for exposure to the so-called last-mile section of the market.

“These are the smaller warehouse units, close to large centres of population, such as London, that have become a critical node within the delivery network for online retail purchases.”

Andrew Jones, chief executive of LondonMetric, said: “The urban logistics market continues to benefit from a highly favourable demand/supply imbalance and this acquisition further increases our critical mass in this sub-sector to over £260m across 38 assets.

“The acquired portfolio is fully income generating and offers good opportunities to extend lease lengths and capture strong income growth.”