Skyline Report: Apartment vacancies reach 11-year low in Northwest Arkansas

Apartment vacancy rates in every market in the two-county area are at the lowest levels ever recorded by the Skyline Report – so low that new construction is needed to avoid significant lease rate increases, according to Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas.

The semi-annual Skyline Report, funded by Arvest Bank, was released Tuesday (Sept. 1) and showed that vacancy rates across Northwest Arkansas overall fell to 2.3% in the first half of 2015, down from the 6.5% reported in the same period of 2014 and down from 3.7% reported in the last six months of 2014.

“Northwest Arkansas recorded continued, steady growth in population even through the years right after the recession,” said Deck, who also is the lead researcher for the Skyline Report. “During those years, there was an abundance of caution in lending and project development that caused a lag in multifamily construction. Most investors and developers wanted to make sure the recovery was real. That caution of 2013 and 2014 has now become a constraint on the market.”

With the Northwest Arkansas economy hitting on all cylinders with 4.3% unemployment rate in July, a blazing hot real estate climate and roughly 25 new residents calling the region home each day, more building is expected this year and next. 

Increased demand drives up the cost of rental space. The Skyline Report found that average monthly rents rose slightly to $581.72 per month during the first half of this year. That was for roughly 847 square feet. The most expensive rents on square-foot basis was $1.42 and was with “by the bed” housing located near the University of Arkansas. Two and three bedrooms units in Springdale were the least expensive at 63 cents and 64 cents per square foot, respectively.

VACANCY RATES BY CITY
Bentonville reported the lowest vacancy rate for multifamily real estate with 0.4% in the first half of 2015, down from 3.7% in the second half of 2014. In Bentonville, more than 1,100 new rental units have been announced or are under construction, according to the report.

Rogers and Springdale each reported a vacancy rate of 0.9% at the end of the first half of 2015; Rogers’ rate was down from 2.2% at the end of 2014 and Springdale’s was down from 2.3% in the same time period. The large Promenade Point under construction in Rogers, is a 200-unit luxury community slated to have the first phase open later this fall. The $14 million project is managed by Sterling Construction Corp. 

“The units are in the process of being finished out with a leasing center, maintenance building and trash compactor. The leasing center contains a cyber café, media room, swimming pool, pool cabana with grill station, outdoor fireplace with TV and fitness center. We broke ground in November and the leasing center opened this summer. The project will be completed in December of this year,” said Sterling Group spokesman Darren Fulford.

There are no new multifamily projects on tap for Springdale.

Fayetteville, with its large college-focused rental supply, had the largest year-over-year decrease in vacancy rates, from 7.2% in the first half of 2014 to 3.6% in the first half of 2015. Most units in recently completed apartment complexes targeted toward college students have been absorbed and the demand is still growing, Deck said.

Additionally, four more student housing complexes are expected to be completed in Fayetteville later this year or next. Those are: Beachwood Village, 670 bedrooms; Gather on Dickson, 233 bedrooms; Sterling Frisco, phase II, 559 bedrooms; and @MOSPHERE, formerly Harvey’s Hill, 628 bedrooms, according to a report by CBRE which was released in July.

Two more Fayetteville multifamily properties are expected to be finished in 2016. Those are The Uptown, 308 units in Fayetteville; and The Links, phase II, 516 units in Fayetteville; 
 
“We have filled the vacancies as quickly as the new apartments have come on line,” said Deck. “They are still being built and continue to be quickly absorbed.”

COMMERCIAL MARKET
Increasing confidence is also being seen in the commercial real estate market in Northwest Arkansas, Deck said. Some businesses and individuals believe the economy has stabilized enough to move into newer and better space than previously occupied, a trend the researchers are watching.

“There is a great deal of office construction right now,” Deck said. “We are watching to see who will backfill into the vacated spaces when the tenants move into better space.”

From Jan. 1 to June 30, 2015, there were $75.2 million in commercial building permits issued in Northwest Arkansas, down from the $153.5 million in commercial building permits issued in the last half of 2014 and from the $78.2 million in permits issued in the first half of 2014.

A total net absorption of 210,402 square feet was the result of 576,017 square feet becoming occupied, while 365,615 square feet were added to the commercial real estate market overall in the first six months of 2015. Vacancy rates for the overall commercial real estate market in Benton and Washington counties in the first half of 2015 was 12%, up from the 11.8% reported in the last half of 2014.

The report found that warehouse space had the greatest absorption gains with 256,346 square feet being rented in the early 2015. Office space saw absorption of 126,470 square feet, while office/retail had 3,268 square feet of space absorbed.

An area with negative absorption was in retail space which grew by 81,049 square feet and net negative absorption of 46,756 square feet in the first half of 2015.

“The commercial market for real estate may have slowed a bit but we are still seeing positive growth overall,” said Kent Williamson, senior vice president and loan manager with Arvest Bank in Springdale. “When the focus switches away from one particular sub-group, it moves to one that might have been slightly neglected in previous months. That cyclical pattern is good for growth and can act as a self-regulator to keep any one sector from becoming overbuilt.”