Some cooling noted in Northwest Arkansas industrial space

A recent mid-year 2024 industrial property update from Palmer Hays suggests that industrial space is still a growing market in Northwest Arkansas, but recent trends show some cooling.

Hays, an industrial and land specialist with Rogers-based Bennett Commercial Real Estate, notes that construction-related companies are the most active in leasing industrial space in the second quarter of 2024.

“Drywall, plumbing, electrical, audio/visual, smaller trades, you name it … they’re signing leases faster than anyone … they try to keep up with the constant flow of new residents and commercial development projects,” he noted.

He said 51.2% of more than 174,000 square feet of industrial space leases in the second quarter was with construction and real estate tenants.

“I’ve not tracked this stat in the past, but I’d venture to say this [is] higher than average,” he wrote.

Hays’ research indicates that industrial space rent is up 5.9% through the year, lower than the 9.7% rise in 2023 and the 11.1% increase in 2022. He believes rents are trending lower because tenants have “more negotiation power.” Part of that power comes from what Hays suggests is a “hypersupply” of flex space combined with “overzealous asking rents.” The price point fluctuation rarely fails to respond to supply and demand realities.

According to Hays, industrial space vacancy is at 3.7%, up from 2% in 2022 but well below historical averages of 7.5%. However, he thinks the rising vacancy percentage will be a headwind for rent rates.

“I believe rents may become somewhat stagnant for a few years as the existing inventory will take a bit of time to lease up,” Hays noted.

The supply-demand relationship may also be reflected in recent deals. In the past 90 days, industrial space sold had an average per-square-foot value of $111.95, below the $112.83 per square foot in the previous 90-day report.

But on the other hand, as there often is with economic variables, Hays suggests overzealous rents help push prices higher for vacant industrial property.

“End users remain the wild card in the current market, consistently placing the highest bids on vacant properties in recent memory. They recognize the value of controlling their own destiny and prefer to secure their own spaces rather than contend with rising rents,” he said.