Northwest Arkansas’ commercial real estate market closed the last half of 2016 on a strong note, according to the latest Skyline Report, portions of which were released Wednesday (April 19) 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.
Data for the commercial and multifamily sectors is the subject of the latest report. The most recent report for the single-family residential sector was released last month.
COMMERCIAL REAL ESTATE
In the last six months of 2016, 1,005,502 square feet of commercial space were absorbed in Northwest Arkansas, while 541,561 square feet of new space were added, resulting in a net positive absorption of 463,941 square feet. The vacancy rate for all commercial space fell from 12.7% in the first half of 2016 to 11.7% in the second half. During the first half of 2016, the commercial market experienced net positive absorption of 11,847 square feet.
The retail submarket has seen a slight increase in vacancy rates from 9.2 percent in the first half of 2016 to 9.4% in the second half of 2016, while the warehouse submarket has seen a more significant decrease in vacancy rates year-over-year from 11.5% in the second half of 2015 to 8.1 percent in the second half of 2016.
According to Kathy Deck, lead researcher for the Skyline Report and former director CBER, the trend is likely a result of the changing shopping preferences of consumers.
“As consumers have increasingly embraced online shopping, it stands to reason that these new shopping preferences will have an impact on different types of commercial real estate with the retail real estate market softening while the warehouse market begins to tighten,” Deck said in the report. “I think that is what we are likely witnessing here in Northwest Arkansas.”
The office submarket continues to show strength, Deck said. While 155,933 new square feet were added in the second half of 2016, 271,396 square feet were absorbed — a net positive absorption of 115,463 square feet.
From July 1 to Dec. 31 last year there were $137.2 million in commercial building permits issued in Northwest Arkansas, a decrease from the $206.5 million in commercial building permits issued in the first half of the year and a slight increase from the $112.8 million in issued in the last half of 2015.
“Overall, the commercial real estate market can be described as both very active and well-balanced at this time,” Deck continued.
Vacancy rates in multifamily real estate rose slightly from the first half of the year but remain at low levels throughout the region. The overall vacancy rate for the Northwest Arkansas multifamily market during the second half of 2016 was 3.2%, up from 2.4% in the first half of the year. The Skyline Report tracks 336,159 multifamily units in 735 multifamily properties across Northwest Arkansas.
“We are visiting with a large number of clients who have been very encouraged regarding the real estate development market here in Northwest Arkansas,” said Craig Rivaldo, president of Arvest Bank’s Benton County market. “They have been seeing and hearing what this report indicates — that the market is well balanced, and there are plenty of good opportunities for intelligent commercial and multifamily projects now and in the future.”
Springdale continues to have the lowest vacancy rate in the region, now falling below 1.0% to 0.9%, followed by Bentonville at 1.3%, Siloam Springs at 1.8%, Rogers at 2.7% and Fayetteville at 4.7%.
Fayetteville’s vacancy rate was up from 3.6% in the first half of 2016, the result, according to Deck, of a substantial number of “by-the-bed” rental units targeted to college students coming onto the market after the start of the fall school semester.
Increased demand put upward pressure on lease rates with the average monthly lease price for a multifamily unit in Northwest Arkansas increasing to $627.04 from $608.88 in the first half of 2016.
“We are running out of adjectives to describe the multifamily market in Northwest Arkansas,” Deck noted in the report. “Considering what is generally considered the normal vacancy rate in multifamily properties is 5%, for the overall rate in Northwest Arkansas to be in the 3% range and to have stayed under 4% since the second half of 2014 is remarkable. With so many new multifamily properties under construction or recently announced, we anticipate that we will likely be in the more normal range of 5 percent within 18 to 24 months. And with so many of the newer properties having a more robust set of amenities, it won’t be surprising if we see higher average rates at that time, even with a higher overall vacancy rate.”