Demand for modern logistics space in the markets Duke Realty Corp. operates in remains very robust, while a few data points tied to global trade and business investment have decelerated a bit, consumer confidence and spending remains strong. Those thoughts are according to the firm’s CEO, James Connor. “Moreover, supply chain expansion and reconfiguration trends remain exceptionally strong as we’ve witnessed firsthand in our business.”
Industrial fundamentals continued to remain relatively balanced, he said on the firm’s Q2 earnings call. Second quarter of supply and absorption were both about 40 million square feet and there was no change to national vacancy rates, which remain at record low 4.3%, he said.
Although there are pockets of oversupply in a few sub-markets, he says that the REIT has very little exposure in these sub-markets. “Generally speaking, there are still labor shortages and land scarcity dynamics, which seem to be creating a natural discipline on the supply in the majority of our markets. Nationally, rents grew 6.4% for the quarter compared to the second quarter a year ago and we expect these rent growth trends to remain consistent for the remainder of the year.”
Turning to the firm’s operating results, he is seeing similar strength in the company’s own portfolio, with stabilized occupancy at 98.2%. “Total portfolio occupancy is up 40 basis points to 93.4% due to the overall leasing volume of 7.5 million square feet in the portfolio, which includes 1.4 million square feet of new leasing in spec projects that had been delivered over the last few quarters, as well as 2.2 million square feet of leasing in new build-to-suit transactions.”
As for leasing activity, overall, the leasing activity and strong fundamentals led to a record quarter of rent growth of 12% and 28.3% on a cash and GAAP basis, respectively. “On a year-to-date basis, we’ve realized 18% rent growth for buildings under 100,000 square feet, 28% rent growth for buildings between 100 and 250,000 square feet, 21% rent growth for buildings between 250,000 square feet and 500,000 square feet, and 48% rent growth for buildings greater than 500,000 square feet. This reflects very strong fundamentals and perhaps more importantly, that we are located in the very best sub-market in each MSA.”