On entering the military district, you will get a long camera pan that shows you the entirety of Colony 9's military base- a fortified area large enough for the entire colony’s residents to take shelter in while the military protects them from Mechon invasion forces. Fortunately, nothing of the sort is going on at the moment.
Instead, Colonel Vangarre is chewing out his soldiers for what happened to the mobile artillery- a strange machine with four caterpillar-treaded ‘legs’ that you can find crashed into the front of some poor colonist’s house over in the Residential District. As it turns out, the soldiers, attempting to match a time limit that he set for them to transport the thing in, lost control and wiped out. They would have brought the Mobile Artillery back anyways, but when it crashed a few crucial parts were damaged, and all the power leaked out of the thing’s Ether cylinders.
Vangarre- to whose misfortune Reyn attached the moniker ‘square-tache’- smacks his men around a bit and then stumps off in a huff. If you like you can talk to the soldiers as well, and then go check on the crashed Mobile Artillery. As it turns out, while Ether is usually used for all power needs around the Colony, the military machine requires an especially pure form of Ether that isn’t normally used for anything else- and that means someone’s going to have to head into Tephra Cave and the Mag Mell ruins held within.
Of course, this isn’t your business, so you’re free to wander around and chat with all the soldiers in the Military District.
After this event, you are left free again- with one stipulation. When you’re ready to progress the story, it’s time to head into Shulk’s workshop- an area clearly marked on the map, off to the left side of the Military District and inside the only building there you can enter. If you’re trying to make sure you accomplish everything you can, now would be a good time to meander around town and talk to everybody with a name- try trading and get quests, though you’ll likely want to hold off on any fighting until you can get Reyn back, if not add another teammate- otherwise someone might fall behind on Skill Points, or you could miss a chance to gain some Affinity within your party.
It’s worth noting that you still can’t find Dickson or Dunban anywhere- which brings up any number of questions, particularly given that the house out by the Commercial District is named ‘Dunban’s House’.