The Dayton industrial market has made significant gains over the past year, leading all property types. There have been several impressive deals over the year, including Bon-Ton occupying the 204,000 SF Cross Dock Distribution Center in Moraine and Heidelberg absorbing the 800,000 SF Cooper Tire building, leading to the positive absorption occurring during 2013.
At the height of the recession, industrial vacancy rates were hovering in the 24-26% range and the market reeled with significant amounts of vacant space in buildings such as the 4 million SF GM Moraine facility. Additionally, there was 600,000 SF of GM supplier space vacated after the facility shut down. Over the past year, there was a significant dent made in the vacancy rate with sales and lease transactions being made. These transactions reduced the vacancy rate by 4.3% moving the overall vacancy rate down to 20%.
On the surface, a 20% vacancy rate may not seem to indicate a healthy market. However, upon closer analysis, the market is actually tighter than it may seem, especially when looking at higher quality manufacturing and distribution space. Currently, most of the vacant product in Dayton dates back to the 1970’s and 80’s. The product that once was considered Class A is now considered Class B or C space. With very little product added to the Dayton market in the last 25 years, there are almost no vacancies in Class A space. Class B space is filling up and now even the Class C buildings are getting attention.
The lack of modern space has ushered in some speculative development of industrial space in the South and North markets. Recently, end users including White Castle and Think Patented have built new facilities to fit their needs. Additionally, there is a high probability that the North market will score another win with a 140 AC distribution project for an undisclosed user in Union to add to the list of successes including Payless Shoes, Caterpillar, and Abbott Labs.
Another dynamic that is taking place is the considerable amount of space that has been leased on a month-to-month basis being converted to term. With the decrease in vacancy, landlords are aggressively renegotiating 3-5 year leases with their month-to-month tenants or replacing them with new tenants that are willing to commit to term.
In conclusion, we may not see as much absorption in 2014 as we did over the past year due to the lack of quality product. However, we will see rates and sales prices increasing throughout the year.