According to a new real estate report, the vacancy rate for commercial real estate in Northwest Arkansas declined almost two percentage points as more than 1 million square feet of space was absorbed in the first half of 2021. Walmart’s new Bentonville headquarters is responsible for nearly two-thirds of the record value in commercial building permits issued in the year’s first half.
On Tuesday (Sept. 21), Fayetteville-chartered Arvest Bank released the Skyline Report on commercial real estate for Benton and Washington counties for the first half of 2021. The Center for Business and Economic Research (CBER) in the Sam M. Walton College of Business at the University of Arkansas researches the findings. It shows the vacancy rate fell below 10% for the first time since 2017, and users absorbed a few large warehouse and industrial spaces.
In the first half of 2021, the overall vacancy rate for commercial real estate declined to 8.9%, from 10.8% in 2020, as 1.15 million square feet of space was absorbed. The market added 246,735 square feet of space and had a net positive absorption of 906,618 square feet. It was the most significant amount of net positive absorption since the second half of 2012 and a reversal from the net negative absorption in 2020 due to a considerable amount of new commercial space entering the rental market.
More than half of the net positive absorption came from the warehouse submarket, where 558,572 square feet of space were absorbed, while owners added no new properties. The vacancy rate in this submarket fell to 6.6%, from 9.3% in the second half of 2020.
The office submarket absorbed 1,052 square feet of space in the first half of 2021. It added 165,424 square feet of space and had a net negative absorption of 164,372 square feet. The vacancy rate rose from 10.8% in the second half of 2020 to 11.2% in the first half of 2021.
“The office market is dealing with pandemic-related factors as companies in the region adjust their office space to accommodate more employees working remotely,” CBER Director Mervin Jebaraj said. “From our discussions with area developers and property managers, we know this includes companies consolidating what were multiple leases or locations. We feel that this is a temporary situation and should have no long-term negative impact, as the need for office space continues to be strong as the region continues to grow.”
The retail submarket absorbed 71,963 square feet of space in the first half of the year. It added 52,215 square feet of new space and had a net positive absorption of 19,748 square feet. The vacancy rate was flat at 10.8% in the first half of 2021, from the second half of 2020.
The office/retail submarket absorbed 18,688 square feet of space, while 12,296 square feet of new space was added to the market in the first half of 2021, leading to net positive absorption of 1,459 square feet. The vacancy rate remained flat at 10.9% from the second half of 2020. According to the report, the average lease rate for class A office/retail space is about $26 per square foot in Bentonville and Fayetteville and less than $22 per square foot in Rogers.
The report also shows that the value of commercial building permits issued in Northwest Arkansas rose by 242.7% to a record high of $647.05 million in the first half of 2021, from $188.8 million in the second half of 2020. Alone, Walmart’s new headquarters project accounted for about $435 million of the previous amount. Still, the remaining $212 million in commercial building permits exceeded the value issued in the second half of 2020 by more than 12%.
“What is evident from this report is that the commercial real estate market in Northwest Arkansas continues to expand, and generally speaking, demand continues to keep pace with the growth,” said Kelly Carlson, commercial loan manager with Arvest Bank of Benton County. “Our commercial lending teams across the region are working with developers to bring intelligent growth projects to fruition.”
Arvest Bank also releases Skyline Reports on residential and multifamily real estate markets in Northwest Arkansas.