2005 Real Estate Review (Market Analysis)

Real Estate Market Data surveys the Northwest Arkansas real estate market twice a year to address existing space, planned and under-construction projects, as well as vacancy and lease rates. As Real Estate Market Data finalizes end-of-year data on commercial, multi-family, and single-family real estate, it’s time to take a moment to review what has happened in 2005.

The biggest issue has to be construction. Planned and newly announced projects have overshadowed demand and consequent absorption of existing space. That trend will most likely continue through the coming year.

The Northwest Arkansas single-family market has been the hottest topic of 2005. Benton County looks to have another record year as home sales are expected to surpass last year’s number of 4,489 total home sales. Median home prices at mid-year had increased by 5 percent over the previous year. Construction activity also remains strong, but with at least 10,000 lots in the pipeline just in Benton County, supply appears to be exceeding demand. Oversupply has also become a concern in Washington County with over 7,500 lots in the pipeline. However, home sales continue to be strong as total sales for 2005 are also expected to exceed the previous year’s total of 2,981.

The professional office market began to improve and recover from over 600,000 SF of space added in 2004. Once again, construction activity remains the biggest issue, especially in Bentonville. Real Estate Market Data tracks over 4.6 million SF of Class A and B office space in Northwest Arkansas, and over 900,000 SF of office space was under construction at mid-year 2005. More than 500,000 SF of this was in Bentonville and much of that space is in one building. Also important to note, the very healthy north Fayetteville submarket, which has experienced little construction activity in the past few years, has five new projects either under construction or in the planning stage.

Office vacancy rates were highest in Bentonville and are projected to remain high with new office space currently under construction. At mid-year 2005, office vacancy was nearly 25 percent in Bentonville, bringing the overall office vacancy in Northwest Arkansas to nearly 15 percent. However, Fayetteville, Rogers, and the smaller Springdale and Lowell office markets all had healthier office vacancies below 10 percent. Overall rental rates as of end-of-year 2005 are not expected to change significantly and have been flat in recent years due to rising vacancies.

As of mid-year 2005, Real Estate Market Data reported more than 2.8 million SF of Class A and B retail space in Northwest Arkansas. The largest portion of this space is in Fayetteville with approximately 1.2 million SF and another 33,000 SF under construction at mid-year. Fayetteville’s retail market at mid-year was also 5.8 percent vacant, which is very healthy. Overall, the Northwest Arkansas retail market was healthy at mid-year with a vacancy rate near 8 percent. However, Bentonville had a vacancy rate of nearly 25 percent, with new projects recently delivered and another approximate 100,000 SF under construction.

The big news in the Northwest Arkansas retail market is obviously the projects under construction and planned for the Rogers market. The area near Pleasant Grove Road and Interstate 540 may soon transfer the retail center of Northwest Arkansas from Fayetteville to Rogers. Nearly 1.5 million SF of retail space is in various stages of construction and planning in the area. Among the various projects, are: Pleasant Crossing with approximately 1 million SF; Pinnacle Hills Promenade with approximately 980,000 SF; and Tuscany Square Center with approximately 40,000 SF.

The office/retail market (typically referred to as strip centers) is reasonably healthy. Although demand looks to be improving in Bentonville, the vacancy is not expected to change considerably there from mid-year’s rate of 17 percent, since just over 50,000 SF was under construction at that time. At mid-year 2005, Real Estate Market Data tracked over 2.2 million SF of office/retail space in Northwest Arkansas.

The hotel market is another market that is changing shape in the area. At mid-year 2005, Real Estate Market Data tracked approximately 4,300 hotel rooms in full- or limited-service hotels located mainly along the I-540 corridor. However, more than 1,000 rooms will soon be added to the overall market with projects currently under construction and in various stages of planning.

Although more than 4,500 multi-family units were either under construction or in the planning stage at mid-year, the Northwest Arkansas market is not expected to change significantly. It will be interesting, however, to see how overall vacancy will be affected as end-of-year data is collected. At mid-year, Real Estate Market Data tracked over 18,000 Multi-family units in the market. More than 10,000 of those units are two-bedroom apartments and over 7,000 units have one bedroom. Fayetteville had approximately 52 percent of the total multi-family market, with Springdale comprising approximately 22 percent, Bentonville had approximately 15 percent, and Rogers/Lowell had the remaining 11 percent. Also at mid-year, the overall stabilized vacancy rate for the multi-family market was a very healthy 5 percent.