Vacancies Trending Upward In Area?s Multi-Family Sector (Commentary)

Streetsmart NWA produces quarterly reports pertaining to the real estate market in Benton and Washington counties. The reports focus on the single-family residential, multi-family residential and commercial sectors of the market. The company also produces quarterly reports on the single-family residential sector in selected cities in Sebastian and Crawford counties.

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In this article the multi-family residential sector is considered.

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In the second quarter of 2009, Streetsmart NWA surveyed 23,502 multi-family units in Benton and Washington counties. These units consisted of studio, one-bedroom, two-bedroom, three-bedroom, and four-bedroom apartments. About 92 percent of the total units surveyed represented one- and two-bedroom apartments. The overall vacancy rate was slightly less than 14 percent, up almost 3.5 percent from the first quarter. Multi-family vacancy in the two-county area has been steadily on the rise over the last few quarters, increasing from almost 11.5 percent in the third quarter of 2008. It should be pointed out, however, the vacancy rate was 13.95 percent in the first quarter of 2008.

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Streetsmart NWA classifies the multi-family market areas as Bentonville/Centerton, Fayetteville, Rogers/Lowell, Siloam Springs and Springdale. Each of these market areas saw increased vacancy in the second quarter compared to the first quarter. The greatest increase was in Siloam Springs where vacancy jumped from 16.23 percent to a rate greater than 18 percent. Siloam Springs comprises the fewest number of units of the market areas surveyed, representing slightly less than 3 percent of the total. Fayetteville reflected the next-largest increase, rising from 13.85 percent in first quarter to slightly above 14.5 percent in second quarter. Fayetteville comprises the largest number of units of the market areas surveyed, representing nearly 44 percent of the total. Bentonville/Centerton reflected the lowest vacancy increase in second quarter, with Springdale and Rogers/Lowell close behind. These three market areas comprise near 14 percent, 18 percent, and 21 percent, respectively, of the total number of multlyi-family units surveyed. Bentonville/Centerton and Rogers/Lowell each reflected second quarter vacancy rates at near 12.5 percent, while Springdale was somewhat higher at 13.75 percent.

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The national multi-family vacancy rate was reported at 7.2 percent in the first quarter of 2009, up from 6 percent a year earlier. Considering the residential rental market as a whole, including single-family residential rentals, the national vacancy rate in the first quarter was indicated to be 10.1 percent.

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Softness in multi-family in Northwest Arkansas is the result of several factors. First, there has been a large increase in product supply over the last several years, particularly in Fayetteville. In the period of time between 1999 and the most recent quarter, Fayetteville accounted for nearly 41.5 percent of the total number of multi-family units (over 16,000) for which building permits were issued in the four market areas, followed by Bentonville/Centerton and Rogers/Lowell at nearly 18 percent and 14.5 percent, respectively. In the second quarter there were nearly 3,600 apartment units in the pipeline in Washington and Benton counties, 68.5 percent of which were in Fayetteville. However, it is important to note that several of the proposed projects are on hold. A second contributing factor to the current high multi-family vacancy is the softness in the single-family residential sector. Many single-family properties have entered the rental market, particularly lower end new construction, as a result of marketing difficulties. A bright spot here, however, is that there is recent improvement in the single family sector leading many economists to believe we are at or very near the bottom of the housing market.

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Also, we must consider that the tax credit for first time home buyers has taken occupancy from the multi-family sector. Finally, a third contributing factor is the employment situation. The Fayetteville-Springdale-Rogers MSA reflected a 6.1 percent (preliminary) unemployment rate in June 2009, up from 5.5 percent in May 2009, and 4.1 percent in June 2008. As we have stated in several other articles in the past, we must get back to positive job creation to enhance population growth and absorb real estate.

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