The vacancy rate for commercial real estate in Northwest Arkansas rose to 11% in the first half of 2019, from 10.9% at the end of 2018, according to a real estate report. The vacancy rate was 10.8% in the first half of 2018. Meanwhile, the multifamily vacancy rate fell to 3.1% in the first half of 2019, from 3.5% at the end of 2018. The rate was 3.9% in the first half of 2018.
Fayetteville-chartered Arvest Bank released Tuesday (Sept. 17) its biannual Skyline Reports on commercial and multifamily real estate for Benton and Washington counties for the first half of 2019. The bank also releases biannual Skyline Reports on single-family residential housing. The reports are completed by researchers at the Center for Business and Economic Research (CBER) in the Sam M. Walton College of Business at the University of Arkansas.
In the first half of 2019, 371,243 square feet of commercial real estate was completed, 472,451 square feet was absorbed, resulting in positive net absorption of 101,208 square feet. The vacancy rate rose even with the more than 100,000 square feet of positive net absorption because of previously owner-occupied space being vacated and going into the rental market, according to CBER researchers.
The office submarket added 107,766 square feet of newly constructed space and absorbed 110,618 square feet, leading to positive net absorption of 2,852 square feet. The overall vacancy rate for office space rose to 8.6% in the first half of 2019, from 8.4% at the end of 2018.
“During the first half of this year and consistently over the past several years, there has been significant addition of new office space in the region, particularly in Benton County, and the market has shown consistent strength by keeping pace with these additions and remaining well-balanced and with a healthy vacancy rate,” CBER director Mervin Jebaraj said.
The retail vacancy rate declined to 10.8% at the end of the first half of 2019, from 11.5% at the end of 2018.
“As we know, the retail sector across the country has been under pressure as a result of changing consumer preferences, but the retail real estate market in Northwest Arkansas has adapted well as more service-oriented business have moved into traditional retail spaces,” Jebaraj said. “Also, the steady population growth of the region has also contributed to a healthy retail market.”
Northwest Arkansas was the 27th fastest growing metropolitan statistical area in the United States in 2018, according to the U.S. Census Bureau. The population rose 2% to 549,128 people, between July 1, 2017, and July 1, 2018.
With regard to other submarkets of the commercial real estate market in Northwest Arkansas, the warehouse vacancy rate rose to 10.3% in the first half of 2019, from 9.9% in the second half of 2018. The vacancy rate for the office/retail submarket was flat at 10.9% in the first half of 2019, from the second half of 2018. The value of commercial building permits issued in the first half of 2019 fell 2% to $166.4 million, from $169.79 million in the second half of 2018.
With regard to multifamily real estate, the decrease can be attributed to a decline in vacancy rates in Bentonville and Fayetteville as a result of absorption of new construction.
“As we have said in the past, an overall vacancy rate under 5% is very healthy,” Jebaraj said. “This time last year, the multifamily vacancy rate was 3.9%, and now, a year later, it has fallen even more.
“The most significant decline in vacancy rates happened in Bentonville, which fell from 6.3% in the first half of 2018 to 3.1% in the first half of the year. Even with many more apartments being constructed and planned, we feel confident that the market will continue to absorb the majority of these new units as they offer proximity to desired services and amenities that are difficult to find in lower-priced single-family homes.”
More than 3,400 rental units, or 54.1% of existing inventory, have been announced or are under construction in new multifamily projects in Bentonville. In Fayetteville, more than 4,100 rental units, or 20.6% of existing inventory, have been announced or are under construction in new multi-family projects in the city. There, the vacancy rate fell to 3.9% in the first half of 2019, from 4.5% in the first half of 2018.
The average lease rate per month for a multifamily unit in Northwest Arkansas rose 2.5% to $691.49 in the first half of 2019, from $674.65 in the second half of 2018.
The report shows 19 multifamily projects that have received building permits between July 1, 2018, and June 30, and those projects had 107 building permits issued at a value of $224.69 million. The largest project was Dodson Road Apartments in Rogers and had 29 permits valued at $39.54 million.
Craig Shy, executive vice president and loan manager with Arvest Bank of Fayetteville, said the reports show the Northwest Arkansas market continues to grow and remains well-balanced.
“Our commercial bankers have been extremely active in helping our customers understand the market and the best opportunities for future development, and these developers are obviously hitting the mark as is evident by these indicators of a healthy, vibrant market,” Shy said.