Dayton , OH, USA

 Climbing vacancy rates, buildings in foreclosure and tenants looking for incredibly low lease rates are just some of the challenges facing commercial real estate brokers in the Dayton area. Local brokers expect the region to bounce back, but it likely will take two or three years.

The discussion about the future of commercial real estate was part of a roundtable event hosted by the Dayton Business Journal this month. The state of the commercial real estate market provides insights into the health and future health of a region.

The roundtable brought together top officials from five commercial real estate firms to talk about the challenges facing the industry and what they are doing to meet them.

Dave Dickerson, president of Gem Real Estate Group; Mark Fornes, owner of Mark Fornes Realty Inc.; Kelly Gray, vice president/broker of Equity Inc.; Jeff Levine, principal/vice president of Colliers Turley Martin Tucker; and Paul Miller, vice president/broker with CB Richard Ellis discussed the commercial real estate industry and the Dayton market.

The group contended while challenges remain plenty, it’s not all doom and gloom. The brokers pointed to a number of positives in the Dayton market, including future development around the new Austin Road interchange and Wright-Patterson Air Force Base.

Too much supply
Dayton, with a manufacturing base that dates back decades, has plenty of functionally obsolete commercial real estate on the market. Dickerson sees too much supply in the area, and much of it won’t work for today’s user. To remedy the situation, a wrecking ball might be in order. Dickerson said at least nine buildings in the central business district should be demolished and used for parking venues or land banking. Taking those buildings off the market would drop downtown Dayton’s office vacancy rate from roughly 32 percent to 22.5 percent.

“We need to right-size the market. We need to get some of this product off the market,” he said.

In addition, some buildings could be retrofitted and renovated, but challenges exist for that as well. The question is, can any of these buildings feasibly be retrofitted and are there going to be developers and investors willing to take the risk?, Dickerson said.

Despite the region’s build-out, Fornes said new buildings remain vital because that’s what tenants and owners want.

“New always beats old,” Fornes said.

Wanting more, for less
Another problem brokers face is explaining to tenants there is only so much an owner can do on lowering rent. Miller said rent rates have been flat or slightly lower in the past few years, but operations costs have remained the same or increased. For example, the Fifth Third Center originally leased for $22.95 per square foot in 1989. Today, its asking price is $21.95 per square foot, even though operating expenses have increased 15 percent to 25 percent in the past two decades.

Despite this, brokers routinely hear tenants asking for lower rents, some requesting unreasonable rates. Even with an overall market vacancy rate of more than 24 percent in the office sector, landlords can’t afford to lose money on their leases.

“There are limits to what a landlord can do,” Miller said. “They can’t lease space for $10 (a square foot).

The out-of-towners
Over the years, out-of-town investors have poured into the Dayton market from the coasts, seeking the relative safety and stability of the area’s real estate. For example, California investors Norman-Dayton LLC purchased Teradata’s headquarters last year for $7 million and New York investment group The Matrix Realty Group purchased the 40 West Fourth Centre last year for $3.8 million.

But brokers said some out-of-town owners have hurt the market because they don’t understand it. They can often be more aggressive and tough to negotiate with, Dickerson said. However, this can be a benefit for local owners.

Dickerson said tenants will relocate because of issues with a building’s owners. He said he’s gotten calls from tenants saying they are leaving a building or will not move to certain buildings because of ownership.

Not all bad
But brokers also see beams of light when looking at the Gem City. They point to development around Wright-Patterson Air Force Base and anticipated development around the new Austin Road interchange as bright spots.

Fornes said areas such as Austin Road — a 400-acre development projected to bring millions of square feet in new space near the Montgomery/Warren County border — will keep people and businesses in the region that otherwise might have looked at West Chester or the suburbs of Columbus.

Fornes said even in a market where hardly anyone is building speculative space, Austin Road will have spec buildings. That’s a sign of confidence in the area. And with the real estate market being cyclical, brokers expect the Dayton area to begin an upswing that should return in the next few years.

Staying busy
After almost a year in a lull, brokers think the real estate chill may be slowly thawing. They said activity has started to pick up in the last six weeks. That means not only the number of calls about getting space has increased, but the groups calling are more likely to close a deal.

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 12,700 employees span the world in 294 offices in 61 countries. On a worldwide basis, Colliers manages 1.1 billion square feet, and has revenue of $US 1.6 billion.

Contact Information

Crystal Kirkland, APR
Marketing Manager

Colliers Turley Martin Tucker
3033 Kettering Blvd., Suite 111
Dayton, OH 45439
(937) 424-2453 (direct)
(937) 228-4909 (fax)
CKirkland@ctmt.com
www.ctmt.com 

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