Another banner year ahead

There has been amazing growth and activity in the commercial real estate (CRE) market in Northwest Arkansas consistently over the past decade. In fact, according to data from Costar, in 2018 Northwest Arkansas experienced the highest commercial real estate sales transaction volume since the data tracking began. That said, for the first time in several years, there is talk of an upcoming correction or downturn in the national economy.

Should we expect the boom in our region to continue in 2019, or will some of the national economic and political changes affect the market’s velocity? There are several reasons to believe Northwest Arkansas commercial real estate will again see another banner year of sales, leases and new development.

In 2018, the leading local economic indicators affecting the CRE market were positive. According to a report from the Northwest Arkansas Council, the region outperformed both the state and national economies in job growth, median income growth, unemployment rate and population growth percentage. These indicators tend to drive the economy and fuel commercial real estate development and investment. When these positive demographics are added to major corporate expansions, it can create a perfect storm. All of the “Big Three” companies had major projects recently, with Walmart announcing its new and relocated home office in Bentonville, J.B. Hunt’s expanded headquarters and new technology building in Lowell and Tyson Foods’ new downtown Springdale tech center.

This wave of news and momentum has put Northwest Arkansas on the national radar with retailers and restaurants. This year, we will see the much anticipated Topgolf project break ground in Pinnacle Hills in Rogers. This will draw several other businesses to that area, including new-to-the-market restaurants, shops and even possibly a hotel.

Outside of the Pinnacle Hills trade area, expect retail development in Northwest Arkansas to follow national trends. It isn’t likely there will be any large shopping center projects developed this year. There will be growth across the market in restaurants, especially the quick-serve brands, fitness and health concepts and entertainment uses. Redevelopment of existing centers that are well located but need to be modernized will also be a trend.

The Northwest Arkansas office market varies greatly across the region. In Benton County, the Walmart vendors and their support are the primary tenant categories. In Washington County, tenants are more traditional uses such as law firms and financial and professional services. In Benton County, the market remains healthy, with low vacancy and a trend of expansion with existing tenants. As tenants look at options in the market, they will strongly factor in the new Walmart HQ location in their search for new space. Properties located along the Interstate 49 corridor from Highway 72 south to Pleasant Grove are in high demand.

In Washington County, the office market has been consistently tight for space. Developers have taken notice, with construction starting on the first new Class A office building built in the market in several years. Downtown Fayetteville has seen some redevelopment of existing property.

Though all categories of commercial real estate development and investment are active in the region, multifamily is outpacing the others. Building permit data suggests hundreds of millions of dollars of multifamily product is in various stages of development in Northwest Arkansas. This is on top of a base of existing product that has greatly expanded in the past few years. Amazingly, even with the rapidly expanding inventory, the vacancy rate across the region is below 5%, which is pushing rental rates up. Investors have taken notice, with nearly $160 million in multifamily sales in 2018. Expect a similar trend in 2019, as some owners look to cash out while trying to time the market.

Something to watch for this year in commercial real estate is the investment in Opportunity Zones. Briefly, Opportunity Zones are census tracts where investors and developer can receive tax deferrals for redevelopment and new investments. The program was started by the federal government last year. They were a major topic of conversation in 2018, however there was little activity within the zones last year. As the tax advisors and investors have now started to understand how they work, expect more activity within the zones this year.

Overall, the Northwest Arkansas commercial real estate market is healthy and active across all sectors. With low vacancy rates, major corporate investments and solid job and population growth, 2019 should be another remarkable year for investors and developers.

Editor’s note: Alan Cole is a principal and executive vice president at Colliers International Arkansas, the largest full-service commercial real estate company in the state. The opinions expressed are those of the author.