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Duke Realty Sees Solid Demand for Properties in Cincinnati

Zacks Equity Research
Updated
If you are looking for a fast-growing stock that is still seeing plenty of opportunities on the horizon, make sure to consider Pool (POOL).

Duke Realty Corp. DRE has been experiencing solid demand for industrial real estate space in the Cincinnati market. The company raised its total leasing volume to 1.3 million square feet of space in the first half of the year. Particularly, the company leased 588,447 square feet of space in its Cincinnati properties during the April-June quarter, following a robust first quarter.

This solid demand is rising from the fact that the Cincinnati metro area enjoys a central location which offers distributors the scope to reach a bulk of the U.S. population in a one-day drive. Duke Realty already has a robust presence in the region, owning, managing or having under development more than 10 million square feet of industrial properties in the greater Cincinnati metro area.

The company’s second-quarter leases included ushering a new tenant, signing renewals with two existing tenants as well as arranging for additional space for another. These apart, the company has started developing a spec building — Fairfield Logistics Center 7940 — a 284,865-square-foot bulk warehouse in Fairfield. The new building, situated on the Seward Road, close to its intersection with Tylersville Road and in proximity to a number of Duke Realty industrial properties in the Cincinnati metro area, will likely be delivered in the fourth quarter this year.

The other development project is a 617,760-square-foot, build-to-suit, omni-channel distribution facility for a furniture and home accessories company named Design Within Reach. This is being constructed in the South Afton Industrial Park in Williamsburg Township, OH, and its delivery is expected in early 2019.

Of late, demand for modern distribution facilities has been getting a significant boost as companies are compelled to enhance, and renovate their distribution and production platforms to support the e-commerce business, address a large customer base and urbanization. Services like same-day delivery are gaining traction and last-mile properties are witnessing a solid increase in asset values.

Per a study by the commercial real estate services firm — CBRE Group CBRE — availability rate for the U.S. industrial real estate market in Q2 shrunk 10 basis points (bps) to 7.2%, denoting the lowest level since Q4 2000. Additionally, with demand surpassing new supply, net asking rents inched up 1.7% in Q2 to $7.11 per square feet — marking the highest level since 1989.

Particularly, with a recovering economy and job market gains, as well as tax reforms, consumption levels are anticipated to remain elevated. And with a healthy manufacturing environment and high business inventories, demand for warehouse and logistics real estate is anticipated to be high, giving significant impetus to industrial REITs like Prologis Inc. PLD, Duke Realty and Liberty Property Trust LPT to flourish.

Specifically, Duke Realty has resorted to sale of sub-urban 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. Nonetheless, the dilutive impact of asset dispositions on earnings, stiff competition and rate hike remain concerns for the company. Further, any protectionist trade policies will have an adverse impact on economic growth, as well as the company’s business over the long term.

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