COMMUNITY CONVERSATIONS: What’s in store for the region’s economy in 2023

Our region’s economy has been shaken by inflation, lingering concerns about commercial real estate after the pandemic, and shocks to global markets over the last year. What will 2023 look like for businesses and residents of the greater Dayton area? What will be the areas of local growth and what challenges should we expect?

January’s Community Conversation on the Dayton Daily News Facebook page on Jan. 25 focused on the region’s economic outlook for 2023 and beyond.

The discussion was co-hosted by Community Impact Editor Nick Hrkman and Reporter Lynn Hulsey and featured expert panelists from around our region to help answer your questions about our local economy, including:

  • Greg Blatt, President of Dayton Realtors
  • Dave Dickerson, President of the Midwest Market at Miller-Valentine Construction
  • LeKeisha Grant, Innovation Manager at The Entrepreneurs’ Center
  • Stephanie Keinath, Vice President for Strategic Initiatives with the Dayton Area Chamber of Commerce

You can watch the full recording of the discussion on our website or on the Dayton Daily News Facebook Page.

Editor’s Note: The transcript below has been edited for brevity and clarity.

What is the Chamber’s view of the Dayton region’s economic outlook for 2023?

KEINATH: I’ve been using the term “pragmatic optimism,” which I think is a way of looking at the strengths we have as a region, but also some of the fears I think that businesses and and residents are looking at for 2023. I think the big issues are probably not a surprise to anybody. I think inflation and the impact on interest rates continues to be a concern for businesses, individuals and families. If you talk to every single business in any industry across the region, workforce continues to be the top concern. And looking at continued impacts on the supply chain and how that that impacts all industries across our region. But all that being said, I think more often than not the conversations we’re having are really pointing to the progress that so many of our economic development projects are making across the region. We all know about the big, splashy projects that are happening in Ohio with the investments from Honda and Intel, but there’s equally as many exciting smaller investments, small businesses that are continuing to expand their operations in our communities and continuing to hire. There are lots of signs of hope.

Do you think there’s going to be an economic recession? If so, what would be the impact on homeowners and businesses in our region?

DICKERSON: Regarding our marketplace, we are seeing a little bit of a slowdown. I see a lot of hesitancy from companies and building or property owners and in business centers. The cost of financing projects is becoming more challenging. Not to say that they’re stopping. I think the decision-making is becoming a little bit more conservative because a lot of people are just holding back and try to figure out the direction of the economy. I think most companies have strong balance sheets, so I think they’re well positioned for weathering a recession if we’re in one or if we’re headed to one.

BLATT: With housing, there’s a lot of concern with the rising interest rates, but I had the opportunity this week to be with Lawrence Yun, the chief economist for the National Association of Realtors. And one of the trends that he shared is that the spread between the 10 year treasury and mortgage interest rates is quite large and right now the average spread between the 10 year Treasury and the actual mortgage interest rates that we’re seeing today was somewhere around six and a half percentage points. There’s about a 274 basis points difference between those two yields. The average typically is about a 1.7% spread. So with that being said, yes, the feds have raised their federal overnight funds rates. But if you look at the 10 year treasuries, that spread is pretty great. We peaked out back in November and December, pushing close to seven and a half to 8% on 30 year fixed rates. And now we’re seeing that retract back a little bit into the six to six and a half percent range. So if there’s a little bit of a bright side here, we could be seeing some easing of mortgage rates and that will open up some more buying opportunity.

With your work with small businesses at the Entrepreneurs Center, have you noticed an increase or decrease in the number of new clients?

GRANT: We’ve been through some highs and lows. January is typically a high entry point of the year, as with many other industries. We don’t see as many new startup businesses. We’re seeing a lot more clients who are in business and they’re working to get to a point of sustainability. And they’re working to improve, whether that is from a marketing perspective or a financial perspective, to get into a place where they can be around longer. That’s not to say we’re not seeing any new businesses, but we’re seeing more existing businesses walk through the door that are wanting help, that are wanting to take advantage of the resources we have available.

How is the Dayton area addressing workforce shortages?

KEINATH: Workforce continues to be a challenge, not because only because of the last couple of years, but at the end of the day, we do not have enough people in Ohio to fill the jobs that are open. Some of the coolest work that I’ve seen have happening is around really intentional partnerships with certain industry sectors and our K-12 and our higher education systems. How do we build out these pipelines? We’re not necessarily addressing that immediate shortage, but employers are so much more open and so much more engaged with our education systems and our amazing higher ed partners, our K-12 partners across the region, and identifying those work-based learning experiences, internships, apprenticeships, the career pathways, so we can start making sure that our the students that already live in our region know the jobs that are available for them. Workforce is not a unique challenge for the Dayton region. But I think we have all of the ingredients that we need to solve these challenges. It’s just that it’s a long-term plan. It’s not something that we can solve overnight.

BLATT: Stephanie mentioned something about home affordability and it is something that we ought to be talking about in the Dayton region versus the rest of the United States. Currently, the median home price in Dayton is $224,200. Contrast that to the US median of $391,467. That’s a big affordability difference. And so the Dayton region, and Ohio in general, really is a very affordable place.

In Lynn’s recent story, you said that affordable housing is a barrier for attracting and retaining talent. What do you think is being done to address that barrier?

BLATT: You have a housing shortage across all segments of the price spectrum, but I want to draw a distinction between affordable housing and what we are terming as “workforce housing.” So affordable housing would be to serve as people that are in the lower income brackets that need need help there. Some of our tenants are paying well over 50% of their their monthly income just on rent. And it’s a barrier for them just to have housing. We have a homeless problem. So we need to work with our local governments to open the doors for those those types of projects to be available.

We have 304,000 jobs available in the state of Ohio. And we don’t have enough people to fill those jobs. And a lot of those are people that are earning between 60 and 120% of the median income. So those will be considered our workforce, right? Nurses, firefighters, police officers, tradesmen, things like that. Dayton Realtors commissioned a workforce housing study a couple of years ago and finished it in 2021. What we found in the Dayton-area study is the biggest barrier to workforce housing that we have is a lot of our zoning regulations and policies, impact fees, and all these other things contribute about $97,000 to the cost of a new home. Well, if we’re talking about workforce housing and affordability, when you add $97,000 to the price of a home, that obviously creates a big barrier. So $250,000 home quickly becomes a $350,000 home, which might knock you know 20 or 30% of the buying public out of that market. So we’re going to have to work with local government officials with their zoning regulations and policies to open up the doors for developers and builders to come in and build homes that are affordable for our workforce. We have to get out of the idea that “we want this, but not my backyard” or NIMBYism.

What are some creative things other regions are doing with their larger office complexes and other under-utilized real estate?

DICKERSON: A great deal of real estate is being repurposed for last-mile delivery. We all receive goods and services not only from Amazon, but other companies on a regular basis and to do that on time, you’re getting materials, even same day, and products housed in repurpose facilities, whether it’s a former big box retail or conversion of an urban warehouse building. And that’ll continue to trend.

How can the Dayton region leverage its strengths in 2023 to improve the economic outlook for businesses, workers and families?

KEINATH: One thing I want to add to the list is water. If you’ve seen some of the recent articles about the Phoenix area and their rapid expansion, they’re building these homes and they don’t have any water, which is just crazy to me. And I think about just how under-the-radar the natural resources of Dayton are and I think that will continue as we look at some of the expansion in our western states, and just the fact that they will not be able to sustain the populations that they have. And so I’m really hopeful that we can position ourselves in the Midwest and Ohio and the Dayton region as being attractive not only to the residents in the workforce, but to the companies that are looking for greater sustainability.

What resources are available right now to those looking to start their own business or existing business owners who are wanting to who need some extra assistance?

GRANT: There are a plethora of resources available, both by the Entrepreneur Center and quite a few of our partners. With our Small Business Development Center, there are monthly new business information sessions for anyone who is brand new to business and has questions about how to start a business in Ohio. In addition, we have an angel investor network that we operate out of the Entrepreneur Center. It is growing daily in terms of the amount of investment that we are bringing in. We’re most known probably for our ESP program that is there to support and mentor our growing tech businesses. We also have our Launchpad events the second Thursday of every month to provide a networking and educational opportunity. We have the ideation workshop where you can come in and do some guided brainstorming to understand where you’re going. And again, we have our SBDC that is there to do one-to-one, confidential counseling.

Inflation is showing signs of moderating and interest rates are still high. How will those two things continue to impact in the Dayton region in 2023?

DICKERSON: We’ve seen a lot of development around the Dayton airport with industrial developers building a lot of speculative warehousing. What we saw over the last couple of years is we’ve had an increase in costs and with the supply chain and availability of materials. But there’s such a high demand and we still have very high occupancy levels that are pushing rents higher.

We do some development on the multifamily side. And we’ve actually had some projects right now that we have to table just because of the interest rates adding a new dimension in the equation of feasibility. That’s on the investment side. I do believe we’ll still see some movement but again, it just makes it that much more of a challenge. So you may see whittled-down projects, you may see projects that are going to get delayed until there’s a clearer economic picture.

BLATT: While inflation and higher interest rates are certainly a concern, I think the Dayton region is, I don’t want to say insulated from that, but I would say that we are very well positioned to weather these changes. To give an example, we’re seeing a lot of onshoring from the coasts coming into the Dayton area. Even though the higher interest rates and cost of doing business puts some upward pressure on rents in Dayton, our industrial space rents are averaging around $6 a square foot. You compare that to other parts of the country and they are much, much higher. If you’re looking to build, our cost per square foot is about $45 a square foot and if you look at other parts of the country it’s running about $159 a square foot. So again, we need to continue to tout our affordability to people from outside the area.