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Duke Realty Enhances Portfolio in Central DuPage Submarket


Duke Realty Corp. DRE is making concerted efforts to capitalize on healthy fundamentals of the industrial real estate market. Recently, the company announced that it started developing an 183,296-square-foot bulk warehouse at Glendale Heights in the Central DuPage submarket. The new building, situated at 990 North Avenue (Route 64) and close to I-355, is expected to be delivered in November 2018.

Having decent freeway access, the construction of this building on a speculative basis seems a strategic fit for the company. This is because the Central DuPage submarket enjoys proximity to downtown Chicago and has densely inhabited neighborhoods in its surroundings.

Moreover, the area is a preferred choice for companies, seeking last-mile distribution locations. Also, with limited availability, the submarket enjoys solid leasing activity. Duke Realty already has a presence in the submarket, with five other buildings, aggregating more than 1.3 million square feet. All the buildings are fully leased.

Notably, industrial real estate investment trusts (REITs) are indeed firing on all cylinders and per a study by the commercial real estate services firm, CBRE Group Inc. CBRE, availability declined for 31 straight quarters to 7.3% for the U.S. industrial market in first-quarter 2018. Moreover, with demand surpassing supply, net asking rents climbed 1.9% in Q1 to $7.01 per square feet, denoting the highest level since 1989.

In order to support e-commerce business, address a large customer base and urbanization, companies are being compelled to enhance and renovate their distribution and production platforms. Services like same-day delivery are gaining traction, propelling demand for modern distribution facilities. Also, last-mile properties are witnessing a solid increase in asset values.

In fact, despite supply picking up the pace, demand remains robust, creating scope for rental rates to grow in several markets. This is offering significant impetus to industrial REITs like Prologis Inc. PLD, Duke Realty and Liberty Property Trust LPT to flourish.

With recovering economy and job market gains as well as tax reforms, consumption levels are anticipated to remain elevated in the future. Moreover, with healthy manufacturing environment and high business inventories, demand for warehouse and logistics real estate is anticipated to be high.

Specifically, speaking about Duke Realty, we note that the company has resorted to the sale of suburban office assets and medical-office buildings in the past, in a bid to transform itself into a domestic-focused industrial property REIT. This augurs well amid the favorable market environment in this asset class. However, the dilutive impact of asset dispositions on earnings, stiff competition and rate hike remain concerns for the company.

Moreover, this Zacks Rank #3 (Hold) stock has rallied 11.9% in the past three months, outperforming 4.7% growth recorded by its industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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