Strong loan growth fuels central Arkansas’ evolving real estate market

Since 2024, central Arkansas has seen strong loan growth, particularly in non-residential construction, hotel financing, and consumer lending. These trends reflect a dynamic market adapting to economic shifts and interest rate adjustments moving forward in 2025.

Arvest Bank experienced significant loan growth in 2024, with an overall increase of nearly 7.5%, more than double the national average of 2.7% for U.S. commercial banks. The bank saw strong growth across multiple loan categories, including a 47% rise in residential home equity loans, a 36% increase in residential construction loans, and an 81% surge in consumer auto loans. Non-residential construction loans also grew by 46.5% over the past two years.

Our growth foretells a commercial real estate landscape in central Arkansas that will continue to see growth and a few challenges across multiple sectors in 2025.

According to a February report from Colliers Arkansas, the office sector in central Arkansas closed 2024 with a vacancy rate of 11.1%, showing marginal improvement over the previous year. Downtown Little Rock saw some revitalization, with high-profile lease renewals such as Rose Law Firm and Central Arkansas Water’s interim lease in the Simmons Tower. Despite these positive developments, demand for large office spaces remains limited as companies balance return-to-office policies with flexible work models. Looking ahead, vacancy rates are expected to remain steady, with growth driven by businesses seeking strategic relocations and consolidations.

The industrial sector remained one of the strongest segments in central Arkansas in 2024, with a vacancy rate of 4.8%, slightly higher than the previous year. Demand for mid-sized industrial spaces under 25,000 square feet remains high, while larger properties have seen slightly slower leasing activity. Developers and investors continue to view the industrial sector as a safe bet, with rental rates projected to remain strong through 2025.

Retail space in Central Arkansas saw an increase in vacancies, reaching 6.0% at the end of 2024 due to big-box closures in Conway, North Little Rock, and southwest Little Rock. Despite this, lease rates have remained stable, buoyed by strong demand from restaurant, entertainment, and experiential retail operators. The sale of The Promenade at Chenal for $73 million underscores continued investor interest in well-positioned retail assets. Looking ahead, the sector is expected to benefit from sustained consumer spending and targeted redevelopment efforts.

Multifamily housing saw growth primarily in Northwest Arkansas, fueled by corporate investments from Walmart and Tyson, as well as a return-to-office trend. However, commercial development remained sluggish due to high interest rates, with investors hesitant despite recent rate drops.

While Northwest Arkansas continues to see a multifamily boom, Little Rock’s growth has been more measured. Developers have pulled back on new projects. Submarkets like Saline and Grant counties are expected to maintain high occupancy rates due to limited new inventory. Home equity loans surged by 47% in 2024, reflecting a trend of homeowners investing in renovations rather than giving up historically low mortgage interest rates for today’s higher rates.

One of the standout areas of commercial growth has been in hotel financing. Arvest saw significant activity in hotel and motel loans, particularly refinances and acquisitions. This trend is expected to continue in 2025, with investor groups targeting existing hotels as attractive assets. New construction in this sector has been limited but remains an area of interest for developers as tourism and business travel continue to rebound.

While there have been recent declines in rates, they are still perceived as high and other factors could impact building costs, so commercial real estate investment remains cautious. Developers and investors continue to seek financing, but projects must demonstrate strong fundamentals to secure funding. Additionally, past-due loans in the small business sector have ticked up slightly, indicating potential headwinds in that area.

Central Arkansas’ commercial real estate market remains resilient, with key growth areas in industrial, hospitality and select residential segments. While moderate challenges persist in office space demand and big-box retail vacancies, strategic investments and a stable local economy position the region well for continued development in 2025. With financial institutions like Arvest reporting strong loan growth and a cautious but optimistic investor climate, central Arkansas appears set for a year of measured but sustainable progress in its commercial real estate sector.

Editor’s note: Marcus Guinn is Executive VP and Loan Manager for Arvest Bank-Central Arkansas. The opinions expressed are those of the author.