Abundant Office Space Seen on Area?s Horizon

Professional office space in Northwest Arkansas continues to record positive net absorption.
Year-end 2006 marked the fourth consecutive reporting period of positive net absorption, which is quite remarkable considering the amount of vacant space and the amount of construction activity in the area.
This positive news reflects continued demand for office space in the area.
Unfortunately, construction activity in Northwest Arkansas continues to outdistance demand.
At year-end 2006, Real Estate Market Data Inc. reported an overall inventory of over 5.1 million SF of professional office space in Northwest Arkansas.
The vacancy rate in the overall market (which includes both Class A and B space) at year-end was about 16.6 percent, which reflects little change in 2006.
Also reporting little change in 2006 were overall average asking rental rates, which were about $15.98 per SF per year at year-end.
Class A professional office space in Northwest Arkansas had about 19 percent vacancy in over 2.7 million SF of space at year-end. This was an increase from mid-year, when vacancy was reported to be about 14 percent.
Attributing to this spike in vacancy were two deliveries in the Rogers market with little pre-leasing. With ample space available, Class A average asking rates slipped slightly to $18.46 per SF per year.
Class B office space had a slight improvement during the second half of 2006 and reported a stronger vacancy rate of about 13.7 percent at year-end. This is down from 16.3 percent at mid-year.
Real Estate Market Data surveyed about 2.5 million square feet of Class B professional office space in Northwest Arkansas at year-end 2006, and the Class B average asking rate was about $12.29 per SF per year.
With the delivery of a new office tower in the Fayetteville market, Class A vacancy rates there jumped sharply to about 8.7 percent at year-end.
Although vacancy under 10 percent is considered relatively healthy, the Class A market in Fayetteville had recently experienced little vacancy prior to that new delivery.
This previously underserved market will soon be faced with an abundant amount of office space, as nearly 200,000 SF were under construction at year-end.
Considering the Fayetteville Class A market had just over 450,000 square feet of office space at year-end 2006, the new deliveries in 2007 will have a significant impact on this segment of the market.
Fayetteville’s Class B office market continues to suffer from high vacancies. At year-end it reflected 17.7 percent vacancy.
The increased vacancy in Class B office space in Fayetteville is partially due to two previously owner-occupied buildings entering the market.
However, at mid-year 2006 the vacancy was 15 percent, which is still considered high.
The Bentonville office market had little surprises in 2006, with continued high vacancies.
Vacancy fell to about 17 percent for combined Class A and B space.
This number is down from 21.8 percent reported at mid-year 2006.
The Class A vacancy rate in Bentonville remains high at nearly 25 percent. Class B vacancy was reported to be 12.9 percent at year-end.
With continued high vacancies, asking lease rates experienced little movement in 2006 and have remained flat for several years.
Bentonville also has a significant amount of office construction under way, with over 400,000 SF under construction at year-end 2006.
The Rogers office market also experienced strong construction activity in 2006 and, unfortunately, early reports of significant pre-leasing were wrong since most of the new space delivered remained vacant at year-end.
The Class A office market in Rogers had about 1.1 million SF existing at year-end and another 100,000 SF under construction.
Class A office space in Rogers had a vacancy rate of about 20 percent at year-end, and average asking rates of just over $19.00 per SF per year.
Class B office space also reflected a high rate, with 18 percent vacancy at year-end. Asking rates should not be expected to rise in this segment of the market significantly in 2007.
The other, smaller office markets in Northwest Arkansas, Springdale, Johnson and Lowell had little movement in their inventory and vacancy rates in 2006.
Lowell, with a new building delivered in 2006, is the only one of the three markets with significant vacancy.
Fayetteville and Bentonville will continue to be the markets to watch in 2007.
Fayetteville’s northern office market offers good amenities and accessibility to highways, which could be influencing factors for possible new tenants entering the market or other tenants relocating.
However, with plenty of office space available in all of Northwest Arkansas, tenants will surely be able to shop around for the deal they want.