Commercial vacancy rates are improving across Northwest Arkansas with positive absorption of existing space but there is still too much unoccupied space not generating income for owners, according to the Skyline Report released Tuesday (April 8).
Vacancy rates in the second half of 2013 decreased slightly in all submarkets of commercial real estate except for the medical office submarket.
COMMERCIAL VACANCY RATES
Office: 15.2%, down 0.1%
Office/Retail: 14.2%, down 0.1%
Office/ Warehouse: 13.4%, down 1.1%
Retail: 9%, down 1.6%
Warehouse: 17.3%, down 0.3%
Medical Office: 12.8%, up 0.1%
“We continue to see new development happening in the ‘hot spots’ of activity — Bentonville and the I-540 corridor in Rogers,” said Kathy Deck, director for The Center for Business and Economic Research at the University of Arkansas. Deck is the lead researcher for the report which is sponsored by Arvest Bank.
“We know that the activity is concentrated, but we are seeing increasing levels of building from more than just a couple of development companies. The plans in place mean that we are going to see a number of new developments come on line in the coming year,” she added.
In the second half of 2013, 492,006 total square feet of commercial space were absorbed, while 106,399 new square feet were added, netting positive absorption of 385,607 square feet in Northwest Arkansas. The largest gains in absorption came in the retail submarket with 140,357 square feet, the office/warehouse submarket with net positive absorption of 83,495 square feet and the warehouse submarket with net positive absorption of 65,767 square feet.
The office and industrial submarkets had positive net absorption of 33,471 square feet and 33,051 square feet respectively, while the retail/warehouse submarket had positive net absorption of 28,653 square feet and the office/retail submarket had positive net absorption of 813 square feet.
“As more businesses and developers are examining the market for opportunities, we remain cautiously optimistic for controlled, measured growth in Northwest Arkansas,” said Kent Williamson, loan manager with Arvest Bank in Springdale. “
Conversations by CBER researchers with commercial developers and property managers during the second half of 2013 tended to be optimistic as to the growth opportunities of the economy in Northwest Arkansas. Panelists said that Class A office and retail markets continue to have the most potential for new growth, particularly in established “hot” locations. Multiple developers are ready and willing to build.
Panelists also noted that oversupply of Class B office/retail space and inadequate infrastructure development for the region’s needs are each negative factors in Northwest Arkansas’ economy.
The City Wire has reported on numerous commercial projects under way and nearing completion. David Erstine and Clinton Bennett of CBRE Northwest Arkansas recently launched the I-540 Interchange Report.
The first edition (January 2014) reveals more than 24 new projects in the planning stage, some of those have since moved into the construction phase over the past month. At the same time, the region also has seen the opening of several other projects including Dunkin Donuts in Bentonville and Planet Fitness in Fayetteville. Bennett and Estine said the climate is ripe for more commercial deals as local infrastructure projects are starting to catch up.
The Skyline Report indicates vacancy rates increased in Fayetteville and Bentonville to end 2013, because of new projects coming online
Overall, Northwest Arkansas’ vacancy rate increased to 5.8% in the second half of 2013 from the 4.3% reported in the same period of 2012 and up from the 4% reported in the first half of 2013, according to Skyline data.
Fayetteville experienced a large jump in vacancy rates, up to 7.7% from 4.6% in the second half of 2012, as 1,989 new bedrooms were added to the market in the last six months of 2013. Bentonville’s vacancy rate increased to 6.3% from the 2.4% reported in the second half of 2012.
“The multifamily market continues to be very tight in Northwest Arkansas and that will continue until new units are added across the region,” Deck said.. “A tight market presents opportunities for developers across the communities of the region and we expect to see continuing announcements of additional units in the coming months.”
While the new student-driven multifamily complexes added to Fayetteville’s available supply of large-scale multifamily housing, the rise in Bentonville’s vacancy rate seems to be localized primarily in the complexes near the Northwest Arkansas Regional Airport, Deck said.
“We have also seen an increase in single family housing construction and absorption in that area, so the shift in the two areas may be related,” she added.
Tighter capacity is prompting higher lease rates. The Skyline reported the average lease rate across the region was $556.72 in the second half of 2013, rents rose 2.14% from the first half of the year.
The City Wire reported on the multifamily market in March following at report from CBRE. That data found stable occupancy rates, despite the active building in Fayetteville.