Vendors Drive Office Demand

As long as the vendors keep coming, so will the office buildings.

More than 250 Fortune 500 companies call on Wal-Mart Stores Inc. of Bentonville, and many of those have established bases in Northwest Arkansas. When the world’s largest retailer calls, a quick response can mean a million-dollar account.

Many vendors even believe locating within 30 minutes of Wal-Mart’s corporate headquarters on Walton Boulevard is more than just convenient for business. Several say it’s more like a commandment written in stone.

They say everything from volume of business to product placement on shelves is at stake.

Although a Wal-Mart spokesman says the company doesn’t give preferential treatment to vendors for locating in Northwest Arkansas, there’s plenty of evidence across Benton and Washington counties that it pays to be close by.

According to their respective county real estate assessors’ offices, Washington County has about 3.7 million SF of office space and Benton County has 972,609 SF – and that’s not counting the hulking corporate offices of Wal-Mart Stores Inc. or J.B. Hunt Transport Services Inc..

Haynes developments

Collins Haynes, president of Haynes Limited, is developing two massive office parks that cater to Wal-Mart vendors in his 74,000-SF Commerce Center on Walton Boulevard and the 75,000-SF Pinnacle Point on U.S. Highway 71 in Rogers. Pinnacle Point is 10 minutes from Wal-Mart, Commerce Center is five minutes away, and most of those developments have been leased before construction is complete.

Haynes says there’s no question vendors for Wal-Mart – as well as Tyson Foods Inc. of Springdale and J.B. Hunt of Lowell – are driving the area’s market for office space.

But he says vendors don’t have to be at Wal-Mart’s door to do business. Being able to quickly answer questions and deliver product samples just makes it easier.

“We have run across a number of vendors who think you have to be next door to Wal-Mart, and that’s why 99 percent of its venders are in Benton County,” Haynes says. “But that’s a major misnomer. As long as you can be there in 30 minutes or so if someone calls, you’re in good shape. That’s the key to doing business with any corporation of the stature of Wal-Mart.”

The U.S. 71 corridor and Bentonville’s Walton Boulevard and industrial park are sprouting office buildings and parks to keep pace. Bentonville Associates Ventures LLC is launching the latest and largest, a 30-acre Northwest Arkansas Business Center on Enterprise Drive in Lowell near the intersection of Arkansas Highway 264 and U.S. 71.

It will feature four three-story office buildings with more than 130,000 SF of space. There will also be a 60,000-SF, multi-story hotel. Its proximity to Bentonville and the new regional airport at Highfill, eight miles away, make it a prime spot for Wal-Mart vendors.

Construction costs on the first of BAV’s office buildings, a 28,000-SF structure, are more than $3 million. Adam Laney, BAV’s leasing and sales manager, says the developers expect to have five to 10 tenants in the first building.

“Our strategy is to develop higher class office parks,” Laney says. “We’re by no means the [Dallas] Las Calinas office park yet. Northwest Arkansas isn’t even ready for something like that. But there’s no other place in Arkansas where you find 250 of the Fortune 500 companies in such a dense area.

Developments like Pinnacle Point and the Northwest Arkansas Business Center are considered class A office space, or high end. Laney says much of the older space in Northwest Arkansas is class B or class C.

Amenities such as dedicated T-1 telecommunications lines, extensive landscaping, high-end restaurants and other tenant benefits set Laney’s business center and Pinnacle Point apart from others. But they’re not the only ones.

Colin and Dana Washburn’s Beau Terre office park, just east of U.S. 71, already has 18 upscale office buildings and plans call for developing another 52 acres. The Washburns shy away from media interviews, but it’s well documented that their tenants are predominantly Wal-Mart vendors.

George Faucette, president of Coldwell Banker Faucette Real Estate of Fay-etteville, says Beau Terre did a good job of targeting its market.

“Beau Terre, Pinnacle Point, the CMN Business Park in Fayetteville are all in very convenient locations for people to commute to and from,” Faucette says. “My sense is they’ll all be successful because the area is growing so fast. As we move together as a metropolitan statistical area, more and more people are going to be living in one town and commuting 20-25 minutes to work in another.

“That’s one of the reasons in Fayetteville that we’re anxious for the city to make strides on their FiberPark north of town. If we can get things started there, that would be a great way to attract businesses and people to Fayetteville.”

Too much growth?

With developers in a feeding frenzy and all of the area’s cities rolling out the welcome mat for new office projects, the question becomes when is enough enough?

John Stuckey, whose Gottlieb Corp. owns numerous retail malls in eight states, including Dixieland Mall in Rogers, says, “never.”

“I guess I’m amazed at the explosion of office space here,” Stuckey says. “Being primarily in retail and industrial development, I don’t really understand the office business well enough to get into it. But what’s going on here reminds me of what often happens in retail.

“It’s natural for developers to build until you’re overbuilt, and then the weaker ones fall and the stronger ones survive and move on to let the area absorb the excess. That’s the way it’s always worked.”

Mark Risk, owner of The Real Estate Consultants in Fayetteville, is a part-time instructor in the University of Arkansas’ economics department.

He says some of the tell-tale signs of a lease-space glut include declining absorption rates, a declining rate of bank loans, dropping lease rates and incentives or concessions to tenants, such as getting six months free with a five-year lease. The first step any developer should take, he says, is to conduct a feasibility study.

“You’ve got to see what the supply is,” Risk says. “You’ve got to go out to the planning offices and see what’s been approved. You’ve got to see how much square-footage is on the market and how much is being added. Is the market getting faster, or is it glutted.

“A big problem can be lag time, too. Sometimes it takes a year or two to get a project done, and the market can shift during that period.”

Laney says word on the street is there’s not enough space at this time. But he knows some developers are maxed out with tenants while others can’t find one.

Bill McClard, a senior vice-president at Lindsey & Associates in Rogers, and his wife, Paula, are one of the area’s most productive commercial real estate sales teams. They have moved a combined 80,000 SF of space already this year, and they currently have clients looking for another 65,000 SF.

Even so, McClard says there may be a glut over the next six to seven months, during which some owners may have vacancies for several months. Ben Israel, president of Dixie Development Inc. of Springdale, says he thinks the market is slowing, despite the fact his projects are leasing quickly.

Dixie’s new upscale Fairway Oaks office buildings on Thompson Avenue in Springdale opens in November. Half of that 15,000 SF has already been leased.

“Space is certainly staying on the market longer that it has in the past,” Israel says. “Stuff that used to take 20 days is now taking 90 days. The good news is I think most of what is going in now are quality buildings.

“As a developer, I hate to see a bunch of inexpensive product go on the market because 10 years from now, where’s it going to be?”

Haynes says there’s still a need for office space if developers can find a niche for the space they’re delivering. He says his Commerce Center is successful is because it’s a half-mile from Wal-Mart’s headquarters.

“We designed Commerce Center specifically for Wal-Mart vendors,” Haynes says. “We actually have a waiting list for venders there. It’s designed to have all of the amenities they need. Pinnacle Point has a lot of the same things that would attract vendors, but it wasn’t designed exclusively for them.”