6/4/2020 | By Sarah Borchersen-Keto
Connor highlighted the ways in which Duke has changed since the financial crisis, including a reduction in leverage from about 52% to 31%, and the creation of a portfolio that is now 100% industrial compared to 35% in 2008. Duke has also increased its geographic diversification and reduced its land holdings.
While Duke has witnessed a little bit of slower decision-making, “all in all, we’re pretty pleased with where we are in terms of deal velocity, our ability to lease space, do renewals, and do new development.”
At the end of April, Duke issued revised guidance and cut its capital commitment by about $550 million. Connor explained that the REIT has suspended speculative development but is still doing build-to-suit development and expects to do $350-450 million of development compared to more than $1 billion last year.
Duke has also cut back on acquisitions and dispositions. “We’re kind of on the sideline taking a wait-and-see attitude,” Connor said. He noted that core assets are continuing to trade at pre-COVID pricing, “so there’s been no disconnect there.” There is, however, a bit of a disconnect on the bid-ask for value-add or multi-tenant projects. “There aren’t enough data points out there and nobody wants to be first and make a big mistake,” he said.
If occupancy and leasing continue to hold, Connor said, Duke could accelerate some additional development, maybe bring some spec development back in the latter part of the year, and still do some acquisitions.
“We think there’s an opportunity for us to be at the high end of that guidance or perhaps exceed it as long as we see the economy and the pandemic continuing to get better,” Connor said.
Looking more broadly, Connor highlighted secular changes that can benefit the industry for potentially the next three to five years. Those changes include accelerated e-commerce, a continued need for last mile facilities, a need for companies to keep more inventory on hand, and a continued interest in onshoring.