Should I niche down to a specific industry in my local area?

I hate to answer a question with a question, but are you focused on local businesses?

If so and the size of your market can't support your business then focusing on a specific industry may be too restrictive.

For more on exploring your market and the industry head on over to read, listen and explore the Step By Step Guide to Specialization
 
On the flipside, if you can have a handful of outstanding, recurring, residual clients in a specific industry that support your business, you can charge a premium for those services.