Xceligent: NWA Office Vacancy Still Falling

The office vacancy rate in Northwest Arkansas is still falling, and that’s good news for developers hoping to capitalize on the appetite for more office space.

But because of the growing demand and limited supply, rents are creeping up, and that news isn’t so good for potential tenants who are shopping around for leased space.

That’s according to the latest quarterly report from Xceligent Inc., a commercial real estate research information and marketing firm based in Kansas City, Missouri.

Xceligent compiles and lists information on commercial properties for several markets across the U.S., including Northwest Arkansas.

The tracked inventory in the local market includes the total SF of all office, retail and industrial buildings greater than 10,000 SF, excluding owner occupied properties and medical buildings.

In the Northwest Arkansas office market, dominated by the large supplier community, the vacancy rate for Northwest Arkansas was 8.5 percent in the first quarter of 2016, down from 9.9 percent one year ago.

The average rent was reported at $18.54 per SF, up from $17.21 in the fourth quarter of 2015.

“Vacancy rates are falling since there was virtually no construction or new product available from 2008 to as late as 2013,” said Jessica Dearnley, principal broker with Flake & Kelley Commercial in Springdale. “Construction of the Hunt Tower [in Rogers] met the demand for several larger tenants. However, tenants are still demanding considerable concessions, and suppliers are trying to pass their vulnerability to their contracts with [Wal-Mart Stores Inc.] on to the landlords.”

Dearnley added that landlords are needing to increase rents due to high construction costs, and tenants who are asking for more tenant improvement allowance.

Not surprisingly, Xceligent also reported a surge of office construction, specifically in Benton County, where 160,000 SF of office space is under construction in Bentonville, and 40,000 SF is under construction in Rogers.

Rogers (13.8 percent) and Bentonville (7.9 percent) have the highest vacancy rates of any area in the region, according to Xceligent.

East Springdale and the Fayetteville Central Business District, each at 3.5 percent, have the lowest.

In the retail market report, the total vacancy in Northwest Arkansas remains 4.5 percent, the same as the first quarter of 2015. Also table are average rental rates, reported at $12.52 per SF.

More availability for tenants is on the way in the form of 338,571 SF of new construction throughout the area. The majority of that is in Lowell (168,500 SF) followed by Fayetteville (79,071 SF), Bentonville (50,000) and West Springdale (41,000).

Northwest Arkansas’ industrial market continues to be strong with a vacancy rate of 3.9 percent, down from 5.1 percent one year ago.

Of the 1.10 million SF reported as vacant, the majority of that space is in Rogers and Lowell, with a combined vacancy of 643,849 SF.

Those two cities also have 335,000 SF of new industrial space currently under construction.

Even with the steady decline in vacancy across the industrial sector, “flex” properties — buildings that can be used for either industrial or office purposes — still claim the greatest vacancy across the area at 13.4 percent.

Here are some other highlights from Xceligent’s first quarter market report:

• The delivery of the 230,000-SF Hunt Tower at 5100 W. J.B. Hunt Drive in Rogers helped push Class A properties to meet most of the demand with 72,489 SF of absorption. The 10-story building welcomed four new tenants in the first quarter (Bayer, World Wide Express, Advantage Sales & Marketing, Duracell) who combined to occupy 96,683 SF.

• At 13.8 percent, Rogers currently holds the greatest vacancy in the office market.

• The office sector in Northwest Arkansas closed the first quarter with 114,243 SF of positive absorption.

• At 5.9 percent, Bentonville and west Springdale had the highest vacancy rate in the retail sector. Bentonville’s jumped from one year ago (at 4.1 percent), while west Springdale’s fell from one year ago (at 7.1 percent).

• Bentonville has an inventory of 5.76 million SF of industrial space, with total vacant space of 56,235 SF. That’s vacancy rate of 1.0 percent, down from 2.8 percent in the first quarter of 2015. Lease rates in that same period jumped from $5.80 per SF to $10.91 per SF, the highest in the area.