Area Developers Launch Space Race

Office and Retail Space Abundent

A survey of office, retail and warehouse space in Northwest Arkansas found an occupancy rate of 96 percent, an incredible level for any market, according to some industry experts.

The survey, conducted by the Northwest Arkansas Business Journal, included 49 properties in Benton and Washington counties with a combined total leasing space of nearly 2,789,892 SF available for office, retail or warehouse use.

And, although the market seems healthy overall, experts in the real estate industry pointed out some soft spots in Northwest Arkansas, most notably in Fayetteville.

The Journal’s sister publication, Arkansas Business, last surveyed the area in August 1995. That survey, which found an 87.6 percent occupancy rate, included 34 properties with 2,070,000 SF rentable space.

In 1998, the Journal found 267,912 SF available for leasing but several developers have plans for or have already begun new developments. In 1995, 255,800 SF of space was available. In both cases, calculations for available space excluded the Northwest Arkansas Mall, which has undergone extensive renovation and construction work since the first survey.

Somewhat surprising is that average rental costs dropped since the last survey. The first study found rents averaged $9.80 per SF for the 23 properties for which prices were disclosed. In the more recent study, rents disclosed for 40 properties averaged $9.65 per SF.

But Jim Gabel, senior vice president at Lindsey & Associates, says rents have actually increased in the past three years as demand as grown. He says the 95.5 percent occupancy rate is on target.

“That’s probably right and it’s going to get worse, too, [meaning space will be] harder to find. … Everybody’s competing for primo locations right now. Rent has gone up so much per square-foot in the last three years, it’s unbelievable,” Gabel says.

Most of that prime rental space is taken now, he continues, so tenants are “having to look for secondary locations.”

The most extreme shortage, Gabel says, is for warehouse space, and he expects that need to be even greater once the Northwest Arkansas Regional Airport opens later this year.

Mark Wann, an agent with Irwin & Saviers Co. of Springdale, says his company, along with appraisal firm Reed & Associates Inc., recently surveyed the market to gauge the need for office space.

They found, Wann says, that Springdale’s vacancy rate was “a little less than 10 percent,” somewhere between 5 percent and 10 percent. In Rogers, they found a vacancy rate of about 5 percent while Fayetteville’s rate was nearer the 12 percent to 13 percent mark. Bentonville’s vacancy rate was highest of the four cities, but, Wann says, that’s because several developers have recently opened new buildings there. In Rogers, there’s little new space being added to the market other than Village on the Creeks, a unique development of retail and office space, Wann says.

Although it is up to the tenants to determine whether retail or office space more aptly fits their needs, Wann says it’s been his experience that demand is usually closely related for the two types of space.

“They track each other pretty close,” Wann says.

Vendors serving Wal-Mart are the primary reason for greater demand for space and the primary reason that available space is absorbed, he continues.

Wann wishes he could coax more vendors to take space a bit further south of Wal-Mart’s Bentonville headquarters — to Springdale, in particular — but Eastman Kodak Co. was the first tenant in his company’s Park Plaza. Bristol-Myers Squibb followed.

“We do our share” of attracting vendors, Wann says, “but [Springdale’s] not popping like it’s been in Bentonville.”

The development currently consists of three buildings with space totaling around 18,000 SF. The property is large enough for another four or five buildings, Wann says, and he expects construction will begin later this year on another 12,000-SF building.

Soft market

George Faucette, president of Coldwell Banker Faucette Real Estate, believes the Fayetteville market is soft.

“My gut reaction is there seems to be a lot of space available in Fayetteville,” Faucette says, citing several buildings where space is still available, including the former Procter & Gamble building with 21,000 SF, Singletree Plaza where about 5,000 SF is still available and a new building in the Sunbridge development.

In his own building, there’s about 1,000 SF of space available, Faucette says.

“My feeling is that [Fayetteville] is a touch but not overwhelmingly soft” with the exception of the area around the Northwest Arkansas Mall, where there’s little, if any, space available, Faucette says. Buildings near the mall are, for the most part, custom-built, he adds.

Vendors serving Wal-Mart Stores Inc. are helping drive the need for office space, many real estate experts say.

That’s especially true in Bentonville for vendors who need small office spaces, Faucette says. But in Fayetteville, banks, retailers and service providers are the biggest users of office space. he adds.

Haynes plans development

Collins Haynes, a Rogers developer, hopes to capitalize further on those vendors’ needs for space. He’s planning a $15 million development, Tower at Pinnacle Point, with 35,000 SF of Class A office space and a 75-suite hotel that offers 24-hour room service.

The office space will be contained in a five-story tower. Haynes says he expects construction to begin later this month but, within 10 days of announcing the project, he already had secured four pre-leases on the building.

Class A office space is custom-finished for each tenant’s needs. A multi-story building allows for more flexibility in accommodating tenants, especially if their needs change over time, than a single-story residential-style office building, Haynes says.

The entire project is expected to be completed by next June. Haynes says several private investors are involved in the venture, dubbed Pinnacle Point LLC, although he declined to identify his partners.

He recently completed a four-story office building in downtown Rogers that is completely leased.

Haynes says a 95 percent occupancy rate for the market is incredible. “As people say, that’s to die for,” he adds.

The Pinnacle Point project is on 11 acres of land, leaving space for another office tower. Once the first is completely leased, construction will begin on the second, Haynes says.

Village of success

Judy Burns, retail leasing agent for Lehman Properties, says demand is terrific for space.

“It is a great market. We have the first retail phase of this building totally committed,” she says about Village on the Creeks, a retail and office development in Rogers. Modeled after Highland Park Village in Dallas, the development already includes 10 office buildings in addition to the retail space. Two more office buildings are under construction and one of the existing buildings is being expanded, Burns says.

Development plans call for three more retail buildings on the property.

Burns says Soho Clothiers, the first retail tenant, plans to expand its 3,600 SF space by one-third and its owners are considering opening another operation in the park. Several retailers are expected to open in August, including Old San Francisco Coffee Roaster, which will sell coffee beans and coffee to go, and Alexandra’s Access, a gift shop featuring furnishings, gifts and antiques.

Village on the Creeks, in addition to being unique in concept to the area, offers easy access to Rogers, Bentonville and Springdale, Burns says. Last month’s opening of Basil’s Cafe, a new restaurant, has spurred additional interest in the center, she adds.

“The demand is here, the access is here and the market is here,” Burns says.