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Duke Realty (DRE) Building Spec Warehouse in O'Hare Submarket

Moumita C. Chattopadhyay

Duke Realty Corp. DRE is making concerted efforts to capitalize on healthy fundamentals of the industrial real estate market. The company recently announced that it is constructing a new warehouse in the heart of the O’Hare submarket.

Specifically, a 154,512-square-foot modern industrial space is being built on a recently acquired 8.15-acre site at 901 Chase Avenue in Elk Grove Village, IL. The property, which is scheduled to be delivered in January 2020, is situated near the north cargo gate of the airport and the I-90 and I-290/355 interchanges.

With decent access to the entire metro area and proximity to O’Hare International Airport, the construction of the building on a speculative basis seems a strategic fit for the company. This is because at the end of first-quarter 2019, there was less than 3% vacancy rate, indicating a solid demand for quality space in this market. While availability is limited in this market, there are fewer sites for new development projects. Therefore, the spec building is likely to witness high occupancy once it is delivered.

Moreover, Duke Realty already owns, manages or has under development around 14.9 million square feet of industrial properties and has strategic land positions available for future development in the greater Chicago area. The solid property base in the region is likely to aid the company in leveraging the favorable market conditions.

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

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, Liberty Property Trust LPT and Terreno Realty Corp. TRNO to flourish.

Per a study by the commercial real estate services firm CBRE Group availability fell for 35 straight quarters to 7% for the U.S. industrial market in first-quarter 2019, denoting the lowest point since 2000. Net asking rents increased 2.2% in the quarter to $7.51 per square feet — marking the highest level since 1989, per a CBRE report.

With regard to 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 favorable market environment in this asset class.

Moreover, this Zacks Rank #2 (Buy) stock has rallied 26.6% year to date, outperforming the industry’s growth of 21%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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Liberty Property Trust (LPT) : Free Stock Analysis Report
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