The overall vacancy rate for commercial real estate fell to 9.7% in the second half of 2017, from 10% in the first half of the year in Northwest Arkansas, as vacancy rates for warehouse and office space fell and rose for multifamily and retail space, according to a real estate report.
On Tuesday (March 27), Fayetteville-chartered Arvest Bank released Skyline Reports on commercial and multifamily real estate in Northwest Arkansas for the second half of 2017. The Arvest Skyline Report is a biannual analysis of commercial, single-family residential and multifamily residential property markets in Benton and Washington County. It’s sponsored by Arvest Bank and completed by the Center for Business and Economic Research (CBER) in the Sam W. Walton College of Business at the University of Arkansas. The report for residential real estate was released in February.
The overall vacancy rate for commercial real estate was at its lowest level since the Skyline Report was first released in 2004, even though 718,282 square feet of commercial space was added in the area. Overall, the market absorbed 990,860 square feet of commercial space, resulting in a positive net absorption of 272,578 square feet.
As a submarket of commercial space, the warehouse vacancy rate declined to 5.8% in the second half of 2017, from 7.6% in the first half of the year. The area added 599,600 square feet of warehouse space and absorbed 713,092, resulting in a positive net absorption of 113,492 square feet. The total amount of warehouse space available fell 55.7% to 534,307 in the second half of 2017, from 1.206 million square feet in the second half of 2013.
Another submarket, the office vacancy rate, fell to 9.1% in the second half of 2017, from 10.4% in the first half of the year. The amount of office space available for rent has declined 30.3% to 1.070 million square feet, from 1.536 million square feet in the second half of 2013.
Mervin Jebaraj, director of the Center for Business and Economic Research, said the office space market in Northwest Arkansas is doing good based on the absorption levels for class B and class C space. “Seeing strength in class B office space rentals is a good sign for the overall economy as it indicates many newer companies and startups are stepping into class B space as their counterparts from a few years ago are moving up and into class A space,” he said. “I believe the entrepreneurial programs in the region are going to need the vibrant class B office market.”
The vacancy rate for the retail submarket rose to 8.9% in the second half of 2017, from 8.7% in the first half of the year. The amount of available retail space increased 20.3% to 871,707 in the second half of 2017, from 724,361 in the second half of 2013. Jebaraj expects the trend to accelerate in the short-term as shopping preferences continue to affect the traditional retail market.
“While the vacancy rate for retail space has increased, it is still relatively stable as many service industry companies like restaurants have taken over what was previously retailer selling goods,” Jebaraj said. “As more large-scale sellers of goods like Toys R Us continue to close stores, we will likely see vacancies increase since these larger, big box spaces are harder to repurpose for service industries.”
In the second half of 2017, commercial building permits increased 74.7% to $204.1 million, from $116.8 million in the first half of the year.
MULTIFAMILY VACANCY RATES
Vacancy rates in multifamily real estate rose to 4.5% in the second half of 2017, from 4.2% in the first half. The rise was largely a result of a few large properties opening late in the year in Bentonville and Fayetteville, Jebaraj said.
“An overall vacancy rate under 5% is very healthy, and even with more than 8,000 new units under construction or announced, we believe that the multifamily market can absorb the new units being built or planned because of the population growth forecasts combined with low inventory of new homes and lots to build new homes,” he said. “Moving forward, it would help the multifamily market to see an increase in lower-priced multifamily developments.”
In the second half of 2017, the average price for rent rose 4.9% to $645.62 per month, from $627.04 in the second half of 2016. Since 2013, the average price of rent has risen 19.9%, from $538.34. Average annual increase over the past four years has been 4.98%.
Ladd Lanier, senior vice president and commercial loan manager for Arvest Bank, said the reports confirm what bank employees have been hearing from customers who work in commercial and multifamily real estate development that the market is strong, balanced and offers development opportunities. “We are fortunate to be operating in an area of the state and country that continues to experience a robust, local economy,” he said.