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Oklak: Development Activity Picking Up

11/19/2010 | By Allen Kenney

In terms of development projects, the last two years have been some of the slowest for Indianapolis-based REIT Duke Realty (NYSE: DRE) since the company went public in 1993, according to CEO Denny Oklak.

However, Oklak says the slowdown appears to be coming to an end. For instance, he notes that the company entered into an agreement last quarter to develop a build-to-suit industrial facility, the first in almost three years.

"The good news is that activity does seem to be picking up," Oklak says. "I think the economy is getting better."

In the third quarter, Duke Realty saw its occupancy rate climb to 88.9 percent, up a full percentage point from the prior quarter. The company also executed 8.5 million square feet of leases during the period from July 1 to September 30. Tenant retention rate for the quarter was 78.5 percent.

Despite the signs of life in the industrial sector, Duke Realty's CEO says he still foresees a tough year ahead in terms of operating fundamentals. "We don't think we're going to be out of the woods entirely, and we still think there's going to be some economic pressure," he says.

In addition to the industrial sector, Duke Realty's business lines include office properties.

Oklak points out that high unemployment continues to weigh on the suburban office market, one of Duke Realty's areas of focus. Additionally, consumer spending is still constrained, which means Duke Realty's retail partners are struggling. As a result, a key driver of the company's industrial business remains muted, according to Oklak.

"The economy is beginning to improve, but we still have a long way to go," he says.

Looking at the company's balance sheet, Oklak says Duke Realty has benefited this year from its ability to access the public equity markets. The proceeds from a $270 million stock offering held this summer were used to buy out the 50 percent interest of the firm's partner in Dugan Realty LLC.

The $300 million transaction added approximately 21 million square feet of industrial property to Duke Realty's portfolio. The deal brought the firm's total acquisitions for the third quarter to $442 million.