NWA commercial vacancy rises amid warehouse growth

Commercial vacancy rose less than 1 percentage point to 6.4% over the past year in Northwest Arkansas, and the rise could be attributed to a jump in warehouse space, according to a new real estate report. Still, the report’s lead researcher said the area market is “healthy and balanced.”

On Tuesday (Oct. 3), Fayetteville-chartered Arvest Bank released The Skyline Report on commercial real estate in Northwest Arkansas for the first half of 2023. The bank sponsors the biannual reports that are completed by the Center for Business and Economic Research (CBER) at the Sam M. Walton College of Business at the University of Arkansas.

The commercial vacancy rate increased to 6.4% in the first half of 2023 from 5.7% in the same period last year. The rate is up from 5.6% in the second half of 2022. The rise can be attributed to the following three submarkets: warehouse, retail/warehouse and office/warehouse.

The three submarkets accounted for 75% of the 528,940 square feet of new commercial space added in the first half of 2023. The addition of the space resulted in an increase in vacancy rates in those three submarkets. Vacancy rates in the other four submarkets fell or were flat from the first half of 2022.

The office submarket vacancy rate declined to 8.8% in the first half of 2023 from 9.1% in the same period last year. According to the report, this reflects the continued strength of Northwest Arkansas as the U.S. office vacancy rate has risen to 16.4%, the highest since the Great Recession.

The retail submarket vacancy rate remained flat at 7.9% in the first half of this year from the same period last year.

“Commercial real estate in Northwest Arkansas is best described as healthy and balanced which is somewhat unique given the national market,” said CBER Director Mervin Jebaraj, the lead researcher for the Skyline Report. “We are still seeing new space come into the market across all submarkets, but the majority of new space is being leased. The only submarkets who have experienced a year-over-year increase in vacancy rates are those in the warehouse category, and we fully expect those to remain healthy. The largest category of warehouse space had a vacancy rate of less than 1% a year ago, so the increase in that category is actually not bad, as it remains a very low vacancy of 3.6% now.”

The total value of commercial building permits issued in Northwest Arkansas fell by 34% to $193.9 million in the first half of 2023 from $293.7 million in the same period last year. The value is also down 19.5% from $240.9 million in the second half of 2022.

The construction of Walmart’s new Bentonville headquarters continues to account for a significant portion of the permit value. In the first half of 2023, the project accounted for $25.2 million in permits. The remaining $168.5 million in permits were unrelated to Walmart’s new headquarters. By comparison, in the second half of 2022, the project accounted for $22.9 million in permits. In 2021, $724.9 million, or 69.4% of the total value of permits, was attributed primarily to Walmart’s new headquarters.

“As we read headlines about stress in the commercial real estate market, nationally, it is good to see that the market here in Northwest Arkansas remains strong,” said Isaac McKinney, executive vice president and loan manager with Arvest Bank in Siloam Springs. “Working with commercial real estate developers in the area, our commercial lending teams remain upbeat about the health of this important sector and continue to help customers with the financing they need.”

Following are the submarket vacancy rates for the first half of 2023 compared to the same period in 2022:

• Office: 8.8%, 9.1%
• Medical office: 5.7%, 6.6%
• Office/retail: 5.8%, 7.3%
• Office/warehouse: 6.4%, 4.8%
• Retail: 7.9%, 7.9%
• Retail/warehouse: 6.3%, 4%
• Warehouse: 3.6%, 0.8%

For a PDF of the full report, click here.