Northwest Arkansas permit values drop in August, but year-to-date pace well ahead of 2015

Construction cranes, bulldozers and dump trucks are a common part of the scenery in Benton and Washington counties as homebuilders and commercial constructions crews are having one of their busiest years in a decade.

But the Northwest Arkansas building pace slowed in August in terms of new construction permits issued by Bentonville, Fayetteville, Rogers and Springdale. The cities issued combined new residential and commercial permits valued at more than $89.655 million in August, down 32.5% from the $132.857 million reported a year ago. Commercial permit activity was spotty in August and the reason for decline from a year ago.

The residential sector had a strong showing in August with the four cities issuing 177 new residential permits valued at $44.53 million, better than the 120 homes worth $32.426 million a year ago. Springdale, Rogers and Fayetteville each reported gains in their August residential permits while Bentonville’s activity was flat. At 55 permits issued by Bentonville, the city had the most new houses going up among cities in the region.

Following are the August residential permit numbers in the four cities.
• Bentonville: 55 permits were valued at $16.369 million, units were flat, values declined 6% from year ago.
• Fayetteville: 41 permits valued at $10.936 million, compared to 22 new homes worth $4.778 million.
• Rogers: 32 new home permits valued at $5.637 million, increasing from 22 units worth $4.432 million.
• Springdale: 49 new permits were valued at $11.588 million, up from 21 permits worth $5.696 million.

Area homebuilders report steady new home sales and say they are trying to stay ahead of demand which continues to be strong thanks to low interest rates and low overall inventory supply in many price categories. Through the first eight months of 2016 the four largest cities have issued 1,239 permits for new homes valued at $294.212 million. well ahead of the 1,067 new home permits issued in the same period last year. Permit values are up 32.58% over the $221.91 million reported a year ago. Builders were 172 homes ahead of last year’s pace through August.

LABOR ISSUES, HIGHER PRICES
Bentonville remains the busiest of the cities for residential activity through August. The city issued 368 new home permits in the first eights months of the year, five more than last year. Permit values rose to $106.06 million, up 29.76% from the year-ago period. Rogers’ residential building pace almost doubled this year with 339 new permits valued at $60.529 million, compared to 224 permits at $35.9 million. That’s 21 more permits than last year with values climbing from $57.531 million. Springdale’s housing growth is also active with 246 permits issued thorough August worth an estimated $59.252 million. That’s better than the 215 permits issued a year ago worth $46.74 million.

The building pace is resulting in high demand for skilled construction workers. Industry trade group Associated General Contractor of America reports two-thirds of U.S. construction firms report having a hard time filling hourly craft positions that represent the bulk of the construction workforce. Association officials said many firms are changing the way they pay and operate to cope, but said labor shortages could slow economic growth and called for new workforce measures to improve the pipeline for recruiting and training new workers.

“With the construction industry in most of the country now several years into a recovery, many firms have gone from worrying about not having enough workers,” said Stephen Sandherr, chief executive officer for the Associated General Contractors. “These shortages have the potential to undermine broader economic growth by forcing contractors to slow scheduled work or choose not to bid on projects, thereby inflating the cost of construction.”

Tight labor market conditions are prompting nearly half of construction firms to increase base pay rates for craft workers because of the difficulty in filling positions. About 22% have improved employee benefits for craft workers and 20% report they are providing incentives and bonuses to attract workers. In Northwest Arkansas higher land costs on top of higher labor expenses are driving up new home prices.

In Bentonville, with building pace nearly stable this year compared to last, permit values have risen nearly 30% from a year ago. The average new home permit value in Bentonville through August was $288,222, up 28% over the $225,165 average a year ago. In Fayetteville the average new home permit value at $239,038 is 10.8% higher than a year ago. In Springdale the average new home permit value rose 10.7% top $240,861 compared to $217,389 a year ago. In Rogers the average permit value through August was $178,554 ,up 11.39% from $160.285.

COMMERCIAL SECTOR
The four cities issued commercial permits valued at $45.125 million in August, which included multifamily. August permits were down 55% from the $100.431 million reported in August 2015. Bentonville and Springdale had the bulk of new commercial permits in August valued at $16.369 million and $15.79 million, respectively. The new Sam’s Club in Springdale received two permits totaling more than $15 million in August. It will be third club in the region for Bentonville-based Sam’s Club. The club construction site is 1517 S. 56th St., in West Springdale near the new Arkansas Children’s Hospital also under construction and Arvest Ball Park.

There continues to be more speculative commercial building in addition to multifamily projects recently covered by Talk Business & Politics. The commercial sector is experiencing vacancy fluctuations according to the existing supply of empty space and amount of new construction, according to the recent Skyline Report commissioned by Arvest Bank and completed by The University of Arkansas Center for Research and Economic Research.

New construction added 462,563 square feet of commercial space in Northwest Arkansas during the first half of 2016 while 474,410 square feet of existing space became occupied, netting a positive absorption of 11,847 square feet, according to the Skyline report. That moved the overall Northwest Arkansas vacancy rate on commercial property to 12.7% up from the 12.4%  reported in the second half of 2015, according to researcher Kathy Deck, director of CBER at the UA.

Deck said almost all of the new retail space added to the market was immediately absorbed resulting in a dip in the retail vacancy rate to 9.2%. There was no new warehouse space added, but some 283,401 of the existing square feet became occupied, dropping that submarket vacancy rate from 11.5% at the end of 2015 to 8%  at the end of June 2016.

The largest gains in net absorption came in the warehouse submarket with 283,401 square feet and the retail submarket with 30,743 square feet. The office submarket had net negative absorption of 30,337 square feet and the office/retail submarket had a negative absorption of 20,519 square feet.

From January 1 to June 30, 2016, there were $206.5 million in commercial building permits issued in Northwest Arkansas, 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.

Though the first eight months of 2016 commercial building permits issued by the four largest cities totaled more than $457.4 million in valuations, up a whopping 75% from the $259.89 million in permits a year ago.