Commercial Leasing Still Healthy, Steady

While much of the country sings the real estate blues, Marshall Saviers is closing deals.

In 2007, Saviers, a vice president with Sage Partners in Fayetteville, completed 20 transactions leasing a total of 120,000 SF of commercial office space in Benton and Washington counties.

So far this year, Saviers has completed 11 transactions leasing a total of 100,000 SF of office space.

“We’re still seeing very steady business,” Saviers said. “In fact, we’re on track to complete more deals this year than in 2007.”

And it isn’t just Saviers keeping busy. Activity throughout the Northwest Arkansas commercial market has remained steady since the first of the year.

New companies have continued to enter the market and existing businesses have used the decline in new building activity to expand their existing space, add new locations and upgrade their current locations.

Companies that sat on the sidelines during the boom years are beginning to make moves in the market.

According to data from the Skyline Report, tenants and retailers absorbed 381,350-SF of competitive commercial property in the two-county market during the first quarter of 2008.

The Skyline Report is commissioned by Arvest Bank Group Inc. and prepared by the Center for Business and Economic Research at the University of Arkansas’ Walton College of Business.

Positive absorption rates led to improved vacancy rates in four out of the six commercial submarkets and an overall decrease in unoccupied commercial space.

“Many vendors are growing and we’re still seeing retailers adding new locations,” said David Erstine, vice president of Sage Partners.

“The economy has made many tenants’ decision process a little longer but the slowdown really is healthy for the economy.”

Price Point

Tenants and retailers might have been on the move, but lease rates stayed fairly unchanged during the first quarter for 2008.

Butch Gurganus, a commercial real estate broker specializing in the office market with Colliers International in Bentonville, said continued demand for commercial space helped keep lease prices consistent across the board.

Lease rates for properties listed in the Northwest Arkansas Business Journal’s 2008 Commercial Lease Guide (p. 18) closely resemble the rates reported for the 2007 lease guide.

The minimum and maximum lease rates reported by Colliers International for the 400,000-SF Superior Commercial Center in Bentonville increased $2 from 2007.

In 2007, Dixie Development Inc. reported a $22 per SF, per month lease rate for Commerce Park II.

This year, Flake & Kelley Commercial, the building’s new leasing firm, reported a rate of $20 to $25 per SF, per month.

And because no new markets have emerged as commercial “hot spots,” existing high-traffic locations continue to be the target for retailers and tenants, Erstine said.

Those building owners who aren’t seeing as much demand for their space are beginning to show some flexibility in the form of concessions, Gurganus said.

Owners will waive a month or two of rent or incorporate finish-out costs if it helps land a new tenant or retain an existing one.

Area land prices have become more susceptible to the decline in construction.

Because of the area’s years of exponential growth, land prices throughout the two-county market inflated to very high levels, Gurganus said.

But a decline in demand for new commercial land has helped bring some land prices back down to market norms.

“Prices are going down for land not on the beaten path,” Erstine said.

“But land that was in high demand now is still in high demand so prices really haven’t come down. It all depends on location. In certain areas I’ve seen deals done that wouldn’t have been done a couple of years ago.”

A continual slowdown in commercial construction will continue to apply downward pressure on land prices throughout the two-county area Marshall said, leading to the eventual decline in land prices across the board.

Available Space

Despite the positive absorption there is still about 5.2 million SF of vacant competitive commercial space in Northwest Arkansas, a 31 percent increase from the first quarter of 2007.

The office submarket had the most available space at the end of the first quarter with more than 1.6 million SF in the two-county market.

The submarket had a 20.6 percent vacancy rate at the end of the quarter, a 0.3-percent decrease from the fourth quarter of 2007.

Gurganus said the more than 315,000 SF of available space in the Superior Commercial Building in Bentonville keeps the vacancy rate high for the office submarket.

Gurganus has signed leased space to three new tenants but the building still has a 94 percent vacancy rate.

“The Superior building has a four-to five-year lease plan,” Gurganus said. “People expect all 400,000 SF to be leased up immediately and it just takes some time.”

The office/retail submarket had a 2 percent decrease in vacancy rates from the fourth quarter of 2007 to the first quarter of 2008, but the addition of more than 3,000 SF kept vacancy rates for the submarket highest out of all six commercial submarkets.

Greg Taylor, commercial real estate agent with The Griffin Company Realtors, said location continues to be the top selling point for many retail and office properties, overriding other aspects such as rates and concessions.

Like quarters prior, the area’s retail submarket fared the best during the first quarter of 2008.

The submarket’s 12 percent vacancy rate is the lowest and closest to the 10 percent vacancy rate Kathy Deck, lead researcher at the University of Arkansas’ Center for Business and Economic Research, said is considered a healthy vacancy rate.

Dave Culpepper, a Subway restaurant franchisee with 21 locations in Northwest Arkansas, said there are still plenty of opportunities for expansion in the two-county retail market.

“Things are growing to the east and west of what we used to see mainly just north and south along Highway 71,” Culpepper said. “Things are now developing from Elkins to Tontitown which were bedroom communities, and somewhat still are, but showing commercial growth.”

Steve Lane, principal and retail broker with Colliers International said the current decline in consumer spending will affect the Northwest Arkansas market.

Movers and Shakers

Big names continue to dominate Northwest Arkansas’ commercial real estate industry.

Mathias Properties Inc. which has developed and leased space in Northwest Arkansas since 1996, has the largest amount of commercial space on this year’s commercial leasing guide.

The Springdale-based commercial development and leasing firm had more than 1.2 million SF of competitive commercial space and a 21 percent combined vacancy rate for its 20 commercial properties in the two-county market.

Colliers International in Bentonville had 21 properties with more than 1.14 million SF of space on this year’s commercial lease guide, enough to make the firm the second largest leasing firm in the market.

Steve Fineberg & Associates Inc. had the most listings in this year’s guide with 30 different properties. Fineberg’s listings totaled 253,475 SF.

This year’s lease guide list had a few new names.

Commercial Connects Realty, Grubb & Ellis-Solomon Partners and Equity Commercial Realty all started business in the Northwest Arkansas commercial real estate market in 2007.

One major absentee from this year’s list was financially troubled Dixie Development Inc.

The company had more than 365,000 SF of commercial space listed on the 2007 commercial lease guide.

Multiple entities have taken over leasing much of Dixie’s space, including Whitley Dunn of Management Realty, Flake & Kelley Commercial and Davidson Partners Real Estate, which declined to participate in this year’s lease guide.