New construction in some submarkets of the Northwest Arkansas commercial real estate market caused vacancy rates to fluctuate in the first six months of 2016.
That was a key finding in the latest Skyline Report, portions of which were released Wednesday (Sept. 21) by Arvest Bank.
The bi-annual analysis of commercial, single-family residential and multifamily residential markets in Benton and Washington counties is conducted by the Center for Business and Economic Research (CBER) in the Sam. M. Walton College of Business at the University of Arkansas.
To read the complete multifamily report, click here.
To read the complete commercial report, click here.
Commercial Real Estate
New construction, according to the report, added 462,563 SF of commercial space in Northwest Arkansas during the first half of 2016, while 474,410 SF of existing space became occupied, netting a positive absorption of 11,847 SF. That moved the overall Northwest Arkansas vacancy rate on commercial property to 12.7 percent, up from the 12.4 percent reported in the second half of 2015.
Almost all of the new retail space added to the market was immediately absorbed, according to Kathy Deck, lead researcher for the Skyline Report and director of the CBER. The absorbed space resulted in a dip in the retail vacancy rate to 9.2 percent.
Meanwhile, no new construction added space to the warehouse submarket, but some 283,401 of the existing SF became occupied, dropping that submarket vacancy rate from 11.5 percent at the end of 2015 to 8.0 percent at the end of June 2016.
“We have been seeing increased consumer optimism in Northwest Arkansas, and the state in general, as demonstrated in the Arvest Consumer Sentiment Survey conducted this past spring,” said Chris Thornton, loan manager and executive vice president of Arvest Bank in Springdale. “As consumers feel more confident in spending and buying, businesses are readying themselves to provide the goods and services consumers are looking for.”
The largest gains in net absorption came in the warehouse submarket with 283,401 SF and the retail submarket with 30,743 SF. The office submarket had net negative absorption of 30,337 SF and the office/retail submarket had a negative absorption of 20,519 SF.
From January 1 to June 30, 2016, there were $206.5 million in commercial building permits issued in Northwest Arkansas, according to the report, an increase from the $112.8 million in commercial building permits issued in the last half of 2015 and from the $75.2 million in permits issued in the first half of 2015.
“That represents a substantial amount of commercial building activity ready to begin shortly,” Deck said.
Multifamily Real Estate
Vacancy rates in multifamily real estate remain at dramatically low levels despite substantial building activity in Northwest Arkansas.
The overall vacancy rate for the Northwest Arkansas market during the first half of 2016 was 2.4 percent, down from the 3.0 percent reported in the second half of 2015. The Skyline Report tracks 34,906 multifamily units across Northwest Arkansas.
Rogers had the largest year over year increase in vacancy rates, up to 5.0 percent in the first half of 2016 from 0.9 percent in the first half of 2015. Fayetteville experienced the largest year over year decrease in vacancy rates with 2.7 percent in the first half of 2016 from 3.6 percent in the first half of 2015.
Increased demand continues to put upward pressure on lease rates. The average monthly lease price for a multifamily property unit in Northwest Arkansas increased to $608.88 in the first half of 2016 from $601.43 in the second half of 2015. The average monthly lease rate per SF remained at $0.71.
“Since 2011, average lease prices for multifamily units have increased 14.8 percent across the region,” Deck said. “While the average price has increased to $608.88, the median lease price has remained somewhat steadier at $550.”
More than 6,200 rental units have been announced or are under construction in new multifamily projects across Northwest Arkansas: Rogers has 1,050; Fayetteville had 3,800; Bentonville has 1,200; and Springdale has 150.