Wright Patterson Air Force Base a catalyst for growth
The Dayton office market moves into a period of stabilization as the Wright Patterson Airforce base continues to maintain a strong foundation for the market. Despite strong activity around the base, overall net absorption came out to be negative 29.4 thousand square feet. Additionally, the overall vacancy rate for the quarter remained relatively unchanged at 20.0%. Average weighted asking rates slightly dipped down to $16.82 during the quarter. As was the case during the previous quarter, the market didn’t receive any deliveries of new supply. Lastly, the market currently has 228 thousand square feet of space under construction.
As the national office market reaches a point of stabilization, the Dayton office market is showing signs of following the same trend. The future remains uncertain as long-term return to work policies are up in the air for many companies. This paired with uncertainty resulted in low demand for the quarter. Overall net absorption for the Dayton office market bottomed out at negative 29.4 thousand square feet. While the overall market saw an increase in negative absorption, the East submarket remained strong. Demand increased and remained elevated relative to the overall market. The quarter ended with 152.2 thousand square feet of positive net absorption. A 161.1 thousand square foot net increase in demand over the previous quarter. No other submarket came close to this figure during the first quarter of 2022 besides the North submarket which ended the quarter with 209 square feet of negative absorption. The demand in the East was primarily driven by the U.S. Airforce as they took occupancy of over 100 thousand square feet of space during the quarter.
The foundational support that the Wright-Patterson Air Force Base provides to the Dayton office market cannot be overstated. Because of this, the East submarket is thriving as demand from government contractors is driving strong activity around the base. Multiple government contracts related to the base are expected to be awarded in the coming months which is one of the driving forces behind Dayton’s most robust office submarket. The overall market posted a vacancy rate of 20% for the quarter. On the surface this would be unchanged from the previous quarter. However, with the start of a new year, changes were made to the property dataset to maintain accuracy for future periods. Changes included removal of demolished properties as well as conversions. If everything was held constant, vacancy would have increased by 40 basis points. Additionally, due to all the previously stated reasons, the East submarket had a vacancy rate of 10.7%. Significantly lower than the overall market, and surrounding submarkets. This figure is expected to drop over the next year as supply slowly decreases around the base.
Furthermore, rental rates have slowly increased since 2019. However, the first quarter of 2022 brought a slight dip in the overall asking rate which went from $17.01/SF to $16.82/ SF. Building off the previously stated strength of the East submarket, rents have risen in the East. During the previous quarter, rates topped out at $19.47/SF and increased to $20.08/SF during the first quarter of the year. Despite the overall market taking a small decrease in the average asking rate, there are pockets of growth within the market. The South submarket being another example.
In addition, the first quarter of 2022 didn’t bring any new supply additions. Construction activity was minimal with 228k square feet of space under construction. The majority of which will complete during the second and third quarters of this year. Most of the activity is taking place in the East submarket with 180 thousand square feet of space under construction. The remainder is in the South submarket. As uncertainty starts to fade away, a clear direction is determined, and a correction occurs in the form of growth, construction activity in the East will likely increase.
Overall, the Dayton office market didn’t make any major moves during the first quarter of 2022. The East submarket remains strong and continues to grow despite a weak overall market. The Wright Patterson Air Force base will continue to be the catalyst for continued growth within the East submarket moving forward. Significant uncertainty underpins office markets across the country and the Dayton office market is no different. The future of office space remains to be determined however, as companies develop concrete return to work policies, the direction of Dayton’s evolving office market will become clearer.