The Dayton industrial market has made impressive gains in the last year. Since 2009, vacancy rates have hovered between 24 to 26%. Now the vacancy rate has dropped to 20%, a 4.23% decrease from 2012.
The vacancy rate doesn’t tell the whole economic story. When vacancy was around 25%, landlords were making major concessions to retain tenants and in some cases tenants kept space simply because it was cheaper to retain the space than to reduce inventories. Cheap rents translated into lower property valuations and lower tax revenues for municipalities.
Now we are showing a significant decrease in vacancy, but the effect to the market is more dramatic than this figure shows. A fair amount of “vacant” space is actually occupied on a month to month basis. Businesses are bursting at the seams, but some are still a little gun-shy about taking on additional space. They remain fearful that that the recovery will not last so they are not ready to commit to a traditional three to five year lease.
Also, Dayton has an older building inventory than other surrounding areas. Some of the industrial space included in the 20% vacancy figure is becoming functionally obsolete. If you look at truly vacant and modern buildings, the supply of vacant product is being absorbed and rates are increasing.
Eventually, we will see this demand trickle down to some of the 2nd tier functionality buildings that have been difficult to fill. Vacancy rates will further decline, but for now there is still a decent supply of vacant space and reasonable prices in the area.