Dayton, Ohio, has had its struggles over the years transitioning from a predominantly automotive manufacturing economy to one with a more diverse base of industries such as transportation and logistics, aerospace technology, medical device manufacturing and unmanned aerial vehicle (UAV) development.
Throughout this tumultuous period, Dayton’s industrial commercial real estate market has had to adapt to the evolving needs of the new tenant mix. Part of that adaptation has led to the construction of several build-to-suits over the last 18 months.
This construction trend is being driven by companies opting for build-to-suit projects instead of purchasing existing properties due to their age, inadequate size or functional obsolescence such as inadequate ceiling heights. The trend is evident in the large amount of industrial space that has been delivered in recent years or is currently under construction in the Dayton market.
The impact of this trend is an elevated vacancy rate when compared to other Midwest markets. Dayton’s overall industrial vacancy rate at the end of the first quarter of 2014 stood at 14.8 percent compared with 5.8 percent for Cincinnati.
Drivers of New Construction
Like much of the industrial market throughout the country, the transportation and logistics industry is driving development activity locally. Two major interstates, I-75 and I-70, which intersect just north of Dayton, led to recent decisions by companies such as Payless ShoeSource and Caterpillar Inc. to locate large distribution facilities in the Dayton region.
There is currently more than 2.5 million square feet under construction, including a 1.8 million-square-foot distribution center for Procter & Gamble located near the Dayton International Airport and a 173,000-square-foot dairy production and storage facility for Meijer in Tipp City, Ohio.
However, the current activity isn’t limited to distribution. In the past 18 months, large manufacturing facilities have opened for companies like Abbott Labs and White Castle. Nearly 5 million square feet of space has been absorbed by area businesses since the start of 2012.
Some 98,459 square feet of space was absorbed in the first quarter of 2014 alone, due in large part to the opening of a new 103,810-square-foot facility for Independent Can Co. in Vandalia, Ohio.
Repurposing Existing Space
While a majority of the activity has been in the form of new construction, the market’s traditional space continues to adapt as well. Nearly all of the Delphi Automotive facilities have been repurposed, and the former General Motors Moraine Assembly Plant is also experiencing a renewal.
Fuyao North America Inc. recently purchased 1.2 million square feet of the 4.2 million-square-foot former assembly plant for $15 million ($12.50 per square foot). According to
JobsOhio, this is the largest Chinese investment in Ohio and the largest east of the Mississippi (since such data has been tracked).
Fuyao, a Chinese-based auto glass manufacturer, is expected to invest more than $200 million in equipment and renovations to the space, and will begin production at this facility in 2015. The sale is helping to resurrect the plant property itself, which has been largely vacant for the last five years. The hope is that suppliers and related businesses to Fuyao will locate support facilities nearby.
In addition to market sales, major leasing activity so far this year has taken place in the South and Upper North submarkets, including multiple new leases in the Beerman Warehouse Building and 28,054 square feet leased by SkyZone Indoor Trampoline Park at South Park – Building I. Although asking rents have remained flat, with the onset of new construction, rents may begin an upward trajectory.
Market Outlook
Looking forward, Dayton’s economy is expected to continue making positive strides. This largely will be due to federal spending, currently accounting for 29 percent of the region’s gross metro product (GMP) and largely connected to nearby Wright-Patterson Air Force Base.
The base is the region’s largest employer, with approximately 27,500 employees, and has an annual impact on the Dayton-area economy of $4.4 billion.
The U.S. Conference of Mayors forecasts Dayton’s GMP to grow by 1.4 percent this year. The highly anticipated development of the UAV industry, which already has a strong presence in the region, is expected to be a major contributor to the area’s growth.
The UAV industry is poised to be a $94 billion industry by 2020.
Additionally, the U.S. Bureau of Labor Statistics reports that the region’s unemployment rate has dropped to 5.2 percent as job growth accelerates. According to PNC Financial Services Group, southwest Ohio will see a 1.2 percent increase in employment during 2014.
Along with these advances will be a great deal of positive net absorption from newly delivered construction. The growth and evolution of the industrial commercial real estate market will continue to play an important role in greater Dayton area’s economic comeback well into the future.
— By Mark Dlott, senior vice president, principal, Cassidy Turley. This article originally appeared in the July 2014 issue of Heartland Real Estate Business magazine.