Duke Realty Corp. (DRE - Free Report) is developing a 193,805-square-foot industrial building in Meadowlands. The move comes as part of the company’s concerted efforts to capitalize on healthy fundamentals of the industrial real estate market in the New Jersey region.
The new building at 5 Ethel Boulevard in Carlstadt/Wood-Ridge is likely to be delivered in February 2019. It is minutes away from New York City via the Lincoln Tunnel and George Washington Bridge, and also lies near the Wood-Ridge NJ Transit Station with rail service to New York City’s Penn Station. It will be accessible through several arterial highways, including I-95, I-80, Rt-17, Rt-3 and Rt-46. Also, there are possibilities for Norfolk Southern rail connectivity.
Having considerable access to highways, construction of this building on a speculative basis, which will provide large block of modern warehouse space for users with immediate needs, is a strategic fit for the company. This is because demand for industrial real estate space continues to be solid, as Northern NJ and the Meadowlands enjoy close proximity to the densely populated New York City metro area which offers distributors the scope to reach a bulk population in a short time. However, availability of such functional facilities is lesser in the region.
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 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.
These have helped the industrial REITs scale new heights. Per a study by the commercial real estate services firm — CBRE Group Inc. (CBRE - Free Report) — 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 - Free Report) , Duke Realty and Liberty Property Trust (LPT - Free Report) to flourish.
Specifically, Duke Realty has resorted to 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. The company already has a robust presence in New Jersey, with 5.7 million square feet of industrial properties presently in ownership or under development. The latest move to grow the company’s property base in the high demand market also augurs well for its top-line growth in the near future.
Nevertheless, any protectionist trade policies will have an adverse impact on economic growth, as well as this asset category’s business over the long term. Additionally, a whole lot of new buildings are slated to be completed and made available in several markets in the near term, leading to lesser scope for rent growth.
This Zacks Rank #3 (Hold) stock has rallied 15.0% in the past six months, outperforming 11.6% 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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