Commercial Building Permits Surge; Multifamily Vacancy Rates Drop

Arvest Bank today released its Skyline Reports on commercial and multifamily real estate in Northwest Arkansas for the last six months of 2014.

Along with positive absorption of existing commercial real estate space in Benton and Washington counties, there has been a surge in the number and value of commercial building permits in every sector. From July 1 to December 31, 2014, there were $153.5 million in commercial building permits issued in Northwest Arkansas, up from the $70 million in permits issued in the second half of 2013.

Further analysis of the report can be found here for multifamily and here for commercial.

A total net absorption of 239,904 SF was the result of 691,946 SF becoming occupied, while 452,042 SF was added to the commercial real estate market overall in the last six months of 2014. The overall vacancy rate for commercial real estate in Northwest Arkansas was 11.8 percent, up from the 11.7 percent reported in the first half of 2014.

The largest gains in absorption came in the retail submarket with 98,781 SF, the office submarket with net positive absorption of 86,528 SF and the office/retail submarket with net positive absorption of 40,960 SF in the Northwest Arkansas market.

The office/warehouse and retail/warehouse submarkets had positive net absorption of 20,384 SF and 19,388 SF, respectively. Only the warehouse submarket showed negative net absorption of 9,337 by leasing 233,713 square feet but gaining 243,050 square feet during the second half of 2014.

“The story is that there is a significant increase in building permit activity despite the somewhat elevated availability of commercial,” Kathy Deck, lead researcher for the Skyline Report and director of the Center for Business and Economic Research at the University of Arkansas, said in a news release. “That illustrates that what space is readily available is not in high demand for the market. It is in the wrong location, or is the wrong type or wrong size. But the activity definitely increased across both Bentonville and Rogers to a degree we have not seen since 2006 and across the various categories of space.”

Dax Moreton, loan manager with Arvest Bank in Prairie Grove, also commented on the report: “We have seen a blend of both custom building plans and some speculation building in the commercial sector. It is important to note that, even in the speculation projects that we are seeing, the builders are taking great pains to make sure the largest space or the majority of the project is pre-leased before beginning the build. So the increase in building is being carefully considered and does not appear to be attributable to exuberant over-estimation of the market.”

In the multifamily real estate market, vacancy rates in every market were at the bottom of the range for sustainable levels, Deck said. Vacancy rates for Northwest Arkansas overall decreased to 3.7 percent in the second half of 2014, down from the 5.8 percent reported in the same period of 2013 and down from the 6.5 percent reported in the first six months of 2014.  

Bentonville had the largest year-over-year decrease in vacancy rates, 1.4 percent in the second half of 2014 from 6.3 percent in the second half of 2013.

Fayetteville also reported decreased vacancy rates, 5.3 percent at the end of 2014 compared with 7.7 percent reported during the same period of 2013.

In Bentonville, more than 1,000 new rental units have been announced or are under construction. In Fayetteville, close to 4,000 new rental units have been announced.

“Some of the decline in vacancy rates in rental properties can be attributed to some fear of the single family residential housing market and uncertainty on behalf of the renters on whether they can qualify for mortgages,” Deck said. “The market is responding to the demand with the new properties we’ve seen announced in the past year, especially in Bentonville and Fayetteville. With almost 4,000 units announced in Fayetteville, not all of those are going to be student-targeted projects. We’ve seen strong employment growth in Northwest Arkansas and all the multifamily data we are seeing aligns with that growth.”

The average monthly lease price for a multifamily property unit in Northwest Arkansas increased to $ 576.23 in the second half of 2014 from $568.80 in the first half of 2014. The average monthly lease rate per square foot was $0.68, up one cent from the $0.67 reported in June 2014.

The Arvest Skyline Report is a biannual analysis of the latest commercial, single-family residential and multifamily residential property markets in Benton and Washington counties.

The report is sponsored by Arvest Bank.