Fortune 1 Maintains Boom Market

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Northwest Arkansas has the only member of the Fortune 1 club, and Ramsay Ball believes that makes it impossible to compare the local commercial market to any other.

Ball is most familiar with the commercial real estate market in Little Rock, where he spent the previous 20 years in that field before joining Steve Lane to form Lane Real Estate Co. in Rogers last November. Steve Lane’s background includes working with the real estate division of Wal-Mart Stores Inc. in Bentonville — the world’s largest company.

“I’ve been coming up [to Northwest Arkansas] for 10 years trying to figure out absorption, and you just can’t do it,” Ball said. “There’s no model for it. There’s no historical trends for it. There’s only one Wal-Mart, and nothing compares to it.”

Tommy Van Zandt of Irwin & Saviers Co. in Springdale came to Northwest Arkansas from Dallas, where he said the market is obviously less reliant on one business. The massive size of the Dallas-Fort Worth Metroplex allows the market to not put all of its eggs in one basket.

But Ball said Northwest Arkansas need not worry when its egg is the golden one.

“I would worry about the federal government going out of business before Wal-Mart doing so,” Ball said.

The continued move of companies nationwide to be near the retail giant has had developers moving around like army ants trying to erect the next business park before the other gets his up first. Everyone believes his project will be the greatest, therefore attracting more of the Fortune 500 companies that deal directly with Wal-Mart.

At least five high profile projects (see chart) totaling 6 million SF at an expected cost of more than $741 million are planned or under way in Benton County alone.

In particular, Bill Schwyhart, one of a trio developing the Pinnacle Promenade in Rogers, said that project will be “the most exclusive” shopping center in the area.

“Net absorption and current occupancy is the best indicator of how a market stands,” Van Zandt said. “If your occupancy is healthy but your net absorption is declining, then occupancy is going to decline.”

Busy Welcome Wagon

Now, businesses that were once putting satellite offices in Northwest Arkansas to have easier access with Wal-Mart are moving their total operations here, or at least a regional office.

“You’re seeing vendors get up here and realize they like it so they decide to just stay and close their other office, whether it’s in Atlanta, Dallas or Oklahoma City or somewhere else,” Ball said. “They may have an office here now where half of the people are working the Wal-Mart accounts and the other half working the rest of the country. And once they’re here, then you have to throw in all of the support businesses for them such as insurance and banking and publishing, etc. It’s just more gas on the fire.”

Little Rock has had a rather stable commercial real estate market, but its downtown area did take some hits in the 1990s, particularly when Bank of America acquired Worthen Bank and Regions Bank acquired First Commercial.

Being the state capital and having the state and federal government offices in town will keep Little Rock’s absorption rate fairly steady.

“Generally, you can predict Little Rock,” Ball said. “They may gain or lose a point every year.

“But Northwest Arkansas is really four different cities with different markets. Some people may throw in Fort Smith, but Fort Smith really has more characteristics of Little Rock. [Northwest Arkansas] has reached a point where any kind of normal arithmetic absorption curb is just so high. It’s self-feeding.”

Big D

Van Zandt’s perspective is from an area — Dallas — that has the second most industrial SF in the nation behind only Chicago.

Van Zandt said Dallas’ diversified economy includes commercial real estate that reaches each end of the spectrum.

“The difference between [Northwest Arkansas] and Dallas is Dallas’ economy is very diversified,” Van Zandt said. “There are so many businesses fueling Dallas’ positive economic situation. Here, there are a couple of large corporations doing all the fueling. It’s not quite as diverse. The good news is there are fewer conditions that could change that could cause a problem.”

Van Zandt said it is never wise for a market to rest on its laurels.

“Right now the U.S. economy is very stagnant,” he said. “There hasn’t been growth in the last three or four years. But, it continues to grow here because Wal-Mart continues to grow. But what if Wal-Mart went through some poor economic times?”

In that case, Van Zandt said, Northwest Arkansas could suffer more than a comparable-sized market because it’s not very diversified.

“The biggest difference here is that a larger market is driven by institutional factors, meaning the national banking industry, insurance and pension funds,” Van Zandt said. “Those factors invest so much in commercial real estate. You don’t have as many of those institutions investing in this area. So much of the activity here is driven by local investors. There are certain guidelines for development institutions will require. But when you have private and local investors, some of those guidelines don’t always have to be followed.”

Van Zandt said developers get into trouble when they disregard the needs and wants of the market.

“Supply and demand and net absorption need to be scrutinized now and always when looking at new development,” Van Zandt said. “Northwest Arkansas is seeing there is a group of ready, willing and able developers. But you can only develop to the market.”

Boom Or Bubble?

With developers jockeying for position to welcome businesses to their buildings, it’s obvious confidence is hardly lacking in the future of Northwest Arkansas’ commercial real estate market.

However, confidence without thorough study is not wise. Ball believes area developers are confident and some may even be gambling a bit with their projects.

“There is a boon market going on here,” Ball said. “The question is, is it a bubble? A bubble typically pops. I’ve seen bubbles in Little Rock. In the late 80s there was a lot of over-building of office space there, especially in downtown Little Rock. There was cheap money available from the savings and loans. It was nonrecourse money. They were pushing it out the door. Now, it still may be cheap but they’re looking at you real hard. When the bubble popped in Little Rock, it set us back many years.

“I think (Northwest Arkansas) is more of a boon because you continue to see a lot of absorption. You still see a lot of tenants looking for space. There’s a capacity for small tenants and very large tenants. And there’s quite a bit space out there still, big blocks of space. But it’s getting leased up quickly. [Rogers’] Barrington Center is good example of that. There’s about 135,000 SF in the two buildings. But they started with good-based tenants. They came out of the ground with about 50 percent of everything already leased.”

Northwest Arkansas ranked sixth in a recent study on population growth among 250 metroplexes nationwide. It ranked No. 23 in job growth.

“That shows what the job growth at Wal-Mart does for this area,” Van Zandt said. “It’s opposite of the national trends.”

As Northwest Arkansas continues to grow, it will satisfy more businesses’ recommended geographical characteristics, and they’ll be looking to move into the area.