UK REIT LondonMetric has completed the acquisition of Tesco.com's last-mile warehouse in south London. The investment volume of £21 mln (€27 mln) reflects a net initial yield of 5.5%.

UK REIT LondonMetric has completed the acquisition of Tesco.com's last-mile warehouse in south London. The investment volume of £21 mln (€27 mln) reflects a net initial yield of 5.5%.

The REIT is funding the acquisition of the Tesco.com Distribution Centre in Croydon from existing resources. The vendor is CBRE Global Investors.

'Last mile' distribution space is becoming an increasingly important component of the logistics network as retailers continue to adopt an omni-channel strategy.

'This is a strategically important site in a densely populated part of London which will continue to benefit from the growth in online shopping and convenience retail. Increasing occupier demand and limited supply for real estate in this location will allow us to capture the true reversionary potential of the asset at both review and expiry,' said LondonMetric CEO Andrew Jones.

The 16,000 m2 distribution centre is classified as a 'dark store' as it is used exclusively for online retail. It
occupies a 3.6-hectare site off the A23 Purley Way, nine miles south of central London and six miles to the north of the M25 motorway.

The unit is fully occupied by retailer Tesco which use it exclusively for its Tesco.com online business and is one of only four Tesco.com distribution warehouses that serve the London market. The unit serves the south and south west portion of London, an area of 647 square kilometres.

The warehouse is let for a further 5.8 years off a rent of £6.7 per square foot (0.093 of a square metre) with a reversionary rent review in October 2015. The area is dominated by retail warehousing with nearby occupiers including John Lewis, Next, Dixons and Sainsbury's as well as a Royal Mail sorting office.

Following this acquisition, LondonMetric's distribution portfolio totals £555.3 mln, comprising 21 distribution centres with a Weighted average unexpired lease term (WAULT) of 14.7 years, 100% occupancy. The distribution portfolio now represents 44% of the group's portfolio.

DTRE advised LondonMetric and BNP Paribas advised CBRE Global Investors.

For more on the prospects for the UK real estate market, see the article and video interviews from our Outlook 2015: Europe/UK & Asia Capital Flows investment briefing.