Commercial Property Vacancy Rate An Important Indicator of Recovery

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Enquirer Column

As I was looking for a way to beat this weekend’s heat, I found myself, along with many others, around the Kenwood Towne Centre. It’s difficult to travel through that area and not notice the hulking mass of rusted metal that is the struggling, and much publicized, Bear Creek property Kenwood Towne Place. It stands as something of an unintentional monument to the property value boom and bust that defines the recession.

While that particular property may be the most infamous locally, it is certainly not the only commercial space that has struggled recently. Commercial property, although it has not received as much attention as residential real estate, is a big factor in the economic recovery.

Data from the U.S. Department of Housing and Urban Development, which they obtain from a partnership with the U.S. Postal Service, help illustrate the potentially difficult position of the Cincinnati area. At the end of the first quarter of this year, the 15-county Cincinnati Metropolitan Area was the 29th largest in total business units - more than 71,000 - similar to how it ranks with other metro areas in the U.S. in terms of population. However, these data also indicate that the Cincinnati area ranked 14th out of U.S. metros in business property vacancies, with more than 15 percent of businesses addresses either reported as vacant or having no information by the Postal Service, about 30 percent higher than the average of all U.S. metro areas.

Cincinnati is the only Ohio metro to rank among the top 20 highest business vacancy rates for the first quarter of this year, keeping dubious company with places like New Orleans and Detroit; however, unlike New Orleans and Detroit, Cincinnati’s rise in business vacancy rates is more recent. The vacancy rate increase between the end of 2009 and the beginning of 2010 in Cincinnati was the 16th largest in the U.S., but many of the other metros in the top 20 of quarterly rate increase were considerably smaller in terms of total units, including the four other Ohio metros in the top 20.

So, what does this mean for Cincinnati? The conventional wisdom about residential real estate is that, although it’s been challenging here, this area did not see the dramatic bubble that occurred in places like Florida, Arizona and California so our burst similarly was not quite as bad. These vacancy data indicate that, while the area still isn’t booming, our residential properties we aren’t faring quite as poorly as commercial, with the 43rd highest residential vacancy rate. It’s difficult to say whether our area “over built” commercial properties in the way that many others did for residential properties, but the startlingly high commercial vacancy rate may suggest that this was the case.

While the federal government has emphasized the residential real estate market, and directed policies towards propping it up, the commercial property market may be just as important, particularly for our area. Since occupied commercial properties tend to bring employment with them, this commercial vacancy rate could be an important indicator of our overall recovery.