Home Featured Duke Realty Corp. Shows Strong Leasing Activity

Duke Realty Corp. Shows Strong Leasing Activity

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“Vacancy across the U.S. declined slightly during the third quarter to 4.3%, creating a solid backdrop for pricing power, evidenced by year-to-date market rent growth approaching 6% nationally.” So said Duke Realty CEO James Connor on the firm’s recent Q3 earnings call. “Preliminary data shows third quarter absorption exceeded deliveries by about 12 million square feet, and the trend for the full year appears highly likely to support continued net positive absorption.”

Overall, new supply remains relatively in check, he said, except for a few pockets, “consistent with what we’ve noted throughout the year. In general, there continues to be a need for modern facilities in major markets for both e-commerce and traditional distribution across the entire logistics supply chain.”

He also touched on some of the recent macroeconomic and geopolitical headlines of late. “Regarding tariffs, we are not seeing any material slowdown in decision-making from our customer base. From a practical standpoint, a 10% tariff on $200 billion of imports equates to $20 billion against a U.S. GDP of over $20.4 trillion. It’s just not enough to slow our economy in any meaningful way. The tariff impact on some construction materials is consistent with what we’ve said the last few quarters. Steel costs are up about 15% year-over-year. Coupled with rising labor costs, overall construction costs are up 5% to 6%, similar to our previous statements. More importantly, we’ve been passing these marginal costs through the customers without a problem and maintaining our development margins.”

Specific to the REIT’s portfolio, he said “this relatively strong backdrop in market fundamentals continued with – coupled with continued expansion or execution by our regional operating teams contributed to the solid 5.2 million square feet of leasing for the quarter. Some of the more notable leases were with customers such as Home Depot, UPS Logistics, DHL, HD Supply and numerous third-party logistics firms.”

With the strong leasing activity and a stabilized industrial portfolio occupancy at 97.9%, he said that Duke continues to be able to push rents, as indicated by our rent growth on new and renewal leases of roughly 28% on a straight-line basis and 11% on a cash basis. “We reported 6.3% growth in cash same-property net operating income for the quarter. Same-property NOI for the nine months ended September 30, 2018, was 4.6%.”