Council CEO: Northwest Arkansas Positioned to Pave Path to Recovery

While concerns over a possible “fiscal cliff” at year’s end temper most predictions for the local, state and national economies for 2013, many indicators show a good chance for a continued economic recovery.

“If the overall national and international recovery continues, Northwest Arkansas will lead the state and nation,” said Mike Malone, president and CEO of the Northwest Arkansas Council.

The council is a nonprofit organization that works to promote economic development in the region by improving education, infrastructure and quality of life.

Unemployment in the Fayetteville-Springdale-Rogers Metropolitan Statistical Area remains the lowest in the state — 5 percent in October — according to the Arkansas Department of Workforce Services.

Malone said Northwest Arkansas’ recovery is broad-based, though the area hasn’t recovered lost jobs in construction and manufacturing as quickly as the rest of the nation has.

However, he said, “the Northwest Arkansas housing market has clearly bottomed, and the recovery appears to be robust. Employment growth in construction should follow.”

The region should also see some recovery in manufacturing next year, as well as gains in transportation jobs, Malone said.

At some point, though, employment in the trades will be exceeded by the new growth industries in Northwest Arkansas, Malone said. He cited these as health care, management, education, food and accommodation, and professional, scientific and technical services.

Here’s a look at how some key local industry sectors could shake out next year:

 

Banking

Bill Holmes, executive director of the Arkansas Bankers Association, listed several reasons why the state’s bankers should be optimistic about 2013.

Arkansas banks lead the Eighth District in net interest margin at 4.19 percent, while bank deposits continued to climb in 2012 — almost 3 percent statewide and nearly 12 percent in the six-county area of Northwest Arkansas.

“I guess I’d be real optimistic, if it weren’t for a small item called the fiscal cliff,” he said. “The boys in Washington sure have us stalled out.”

The cliff notwithstanding, there are other challenges remaining for many banks in 2013. Loan demand is weak in most areas of the state, according to the Arkansas State Bank Department.

In Northwest Arkansas, most of the loan volume is for sales of Other Real Estate Owned, which totals $578 million in the entire state, according to the ASBD, up from $46 million at the end of 2006. Jett Cato, president and CEO of Bank of Arkansas, a subsidiary of Bank of Oklahoma Financial Corp., said one thing banks will have to work on is finding additional sources of revenue.

“One of the things I see is the continuation of the QE programs, and that continues to put a downward pressure on interest rates,” he said. “With that pressure, [loan] spreads are being compressed, so you focus on other areas like mortgage origination and less on loan interest-rate income.”

The demands of the regulatory burden wrought by Dodd-Frank aren’t going away anytime soon, either. Holmes said, however, it does feel like headway has been made toward lessening the impact.

“It feels like the pendulum has quit swinging out farther,” he said. “It’s swinging back toward the center a bit, or at least stopped the over-regulation swing.”

 

Commercial Real Estate

A forecast released by the National Association of Realtors in November indicated the commercial real estate market is looking less bleak than it has in recent years, with vacancy rates, rents and absorption rates improving on a national scale. And according to several area commercial real estate brokers, those fundamental improvements will make Northwest Arkansas a solid market as the recovery in the commercial real estate market continues in 2013.

“When we talk to retailers on the national level,” said Amy Mills, “Northwest Arkansas is an easy sell.”

Mills, executive broker with Steve Feinberg & Associates of Bentonville, also noted lease rates have gone up significantly in the fourth quarter of 2012.

“They’ve gone up in office space and retail space, and those vacancies are being filled,” she said. “There’s finally going to be a need for new construction.”

Bill McClard, senior vice president and executive broker with Lindsey & Associates in Rogers, says the tightening of supply isn’t necessarily a sign that contractors will be overrun with new work any time soon.

“But I think we are to a point where there are going to be some [building] increases in all sectors if things hold for another six months,” he said.

Clinton Bennett, managing broker of CBRE|Northwest Arkansas in Fayetteville, said improving national trends, coupled with the area’s economic recovery, will favor investors.

“[Investors] consider so many factors when looking at the market, but the fact that we have low unemployment and continued job growth is important,” he said. “There’s going to be interest from regional and local investors who want to own real estate in this market.”

T.J. Lefler, a partner at Sage Partners in Fayetteville, also noted the growing migration of office users to Northwest Arkansas, and not just because of the “Big Three” of Wal-Mart Stores Inc., Tyson Foods Inc. and J.B. Hunt Transport Services Inc.

“Fayetteville, and everybody really, is doing a good job of attracting green companies and international companies, in particular,” he said. “And new companies drive office space and drive a good real estate market.”

 

Construction

Kathy Deck, director of the University of Arkansas’ Center for Business and Economic Research, echoed Malone’s sentiments regarding the correlation between job growth and the 2013 construction outlook. She expects the job growth experienced in 2012 to continue into next year.

“The trend line there looks pretty good,” Deck said. “All of our major companies are in good shape, generally speaking, and that’s a good sign.”

The best news appears to be in the single-family construction segment, where Deck predicts “high single-digit increases” in both Benton and Washington county permits, though “a little bit more in Benton than in Washington.”

Deck said the plethora of multifamily projects in the works, particularly in Fayetteville, will continue to provide a boost. Even more projects develop, she said, as the student population continues to grow and the single-family rental market remains “quite, quite tight.”

As for commercial construction, Deck said the news is a little more somber.

“Of all the sectors, I think we have the farthest to go in office and retail,” she said. “But I wouldn’t be surprised to hear about some additional retailers choosing to do some build-to-suit construction projects — just probably not to where you’d need a spreadsheet to keep up with them.”

 

Retail

National retail chains will continue to expand into Northwest Arkansas in the coming year.

The city of Rogers will get Marshall’s/HomeGoods, Shoe Carnival and Michael’s Arts & Crafts stores at the 60,000-SF Scottsdale Phase VI shopping center. Construction of the $12.49 million center owned by Tom Hopper is expected to be completed in January.

Brenda Majors, marketing manager at the Pinnacle Hills Promenade in Rogers, said two stores are under construction there. One will house a Chico’s store, and the other will be a Hancock Fabrics store. Both are expected to open early next year.

“Once Cabela’s [and other stores] came in and committed, it just opened the door for other retailers to want to come to this area,” she said.

The center’s occupancy rate is “well over” 90 percent, she said, adding that announcements of new stores and restaurants will be forthcoming. Also, LongHorn Steakhouse, going in next to Best Buy, will likely be opening in 2013, she said.

“Based on how we’re progressing so far for the fourth quarter, it’s going to be a stellar year,” Majors said.

At the Northwest Arkansas Mall in Fayetteville, general manager Jeff Bishop said he’s seen increased interest in the area this year from retailers and restaurant chains, and the mall has “quite a few deals that are in the pipeline right now.”

Also, construction is under way in the food court to convert a couple of the food-service areas into 1,200-SF shops, and the mall’s overall occupancy rate is “in the low 90 percent range,” he said.

“We’re feeling very good about where we’re headed in 2013, and very confident we’ll have some new activity,” Bishop said.

On a larger scale, Wall Street analysts expect Wal-Mart Stores Inc. to report a 5.4 percent increase in sales for its fiscal year, which ends Jan. 30. The world’s largest retailer, which recently reported it had its most successful “Black Friday” ever, will release fourth-quarter and fiscal-year earnings Feb. 21.

Kiplinger, a Washington, D.C.-based consumer finance publisher, said in its retail forecast that concerns that Congress won’t extend 2011’s payroll tax cut “will likely make consumers pull back on spending even more than they typically do in January.”

“However, we expect a pickup in consumer spending in the second half of the year as the economy shows more pep. That should help spark retail sales growth of about 5 percent for 2013 as a whole, though it’s less than the 6 percent gain expected for this year.”