Year-End Multi-Family Report Shows Healthy Vacancy (Market Analysis)

The overall Northwest Arkansas multi-family market experienced an increase in inventory of more than 1,500 units in 2005. Net absorption was negative at year-end, which could be attributed to the delivery of new units.

As of Dec. 31, Real Estate Market Data Inc. tracked approximately 20,628 multi-family units in Northwest Arkansas.

The Fayetteville market still has at least half of all multi-family units in the area. Springdale follows with approximately 22 percent of the market. The Rogers-Lowell area has approximately 16 percent, and the Bentonville area has about 10 percent. The remaining inventory of the Northwest Arkansas multi-family market tracked by REMDI is in Siloam Springs with approximately 2 percent.

After overall vacancy improved by mid-year 2005, it managed to inch upward at year-end to approximately 5.36 percent. Nevertheless, since year-end 2004, stabilized vacancy (which is vacancy in apartment complexes that have been established in the market with reasonable time for initial lease-up and absorption) has remained near 5 percent, which is considered healthy.

Northwest Arkansas’ multi-family market had an overall stabilized vacancy rate of 6.5 percent at year-end 2004, but dropped to 4.78 percent at mid-year 2005.

Average monthly rental rates also cooled during the last half of 2005, after increasing nearly 5 percent at mid-year 2005 over year-end 2004. The average monthly rental rates for one- through four-bedroom apartment units leveled out and only reflected a slight increase at year-end 2005 of about 0.6 percent.

Most of the multi-family units in Northwest Arkansas consist of two-bedroom units. Approximately 56 percent of the total market is two-bedroom units, followed by one-bedroom units at 37 percent.

Over 500 units were added to the Fayetteville multi-family market in 2005. At year-end 2005, there were more than 500 units planned or under construction in Fayetteville. This market, obviously affected by the University of Arkansas, has over 10,000 units in its inventory. At year-end 2005, stabilized vacancy in Fayetteville was approximately 3.47 percent, which is well below the 6.17 percent vacancy rate reported at mid-year 2005. Average monthly rates at year-end 2005 for apartments in Fayetteville increased about 3.7 percent over year-end 2004.

The Springdale market had approximately 100 units added to its inventory in 2005. The Springdale multi-family market currently has just over 4,500 units surveyed by REMDI, and at year-end 2005, REMDI tracked over 600 units either under construction or planned in Springdale. The stabilized vacancy rate in Springdale increased significantly at year-end to 10.25 percent, over mid-year’s 4.93 percent. This appears to be partly due to recent additions to the inventory, as well as new-home purchases affecting the rental market.

Over 500 units were also added to the Rogers-Lowell multi-family market in 2005, with another 1,200 units either under construction or planned as of year-end. REMDI has just over 3,200 units tracked as of year-end 2005 in Rogers-Lowell, and a stabilized vacancy rate of approximately 4.51 percent is indicated. A significant increase in rental rates occurred in the Rogers-Lowell market in 2005. This is due to the delivery of a new Class A project.

The Bentonville multi-family market had approximately 72 units added to its inventory in 2005 but has over 1,400 units either planned or under construction. As of year-end 2005, REMDI tracked just over 2,100 units in this market. The stabilized vacancy rate was a very healthy 2.81 percent, and average rental rates increased nearly 3 percent during the second half of 2005.

REMDI recently added the smaller Siloam Springs market to its database, and as of year-end 2005 this market was experiencing a stabilized vacancy of approximately 3.29 percent. At year-end, there were only three known projects planned or under construction totaling about 41 units.

In comparison to the rest of the country, the multi-family market in Northwest Arkansas appears to be performing very well. According to a recent report published in Multi-Housing News (January 9, 2006), “vacancy rates for apartments nationwide will decrease from 10.2 percent to under 10 percent by the end of this year [2006].”

The report also points out the multi-housing sector, after experiencing the results of a housing and condominium boom, as well as a recession, should continue to improve into 2006.

Nationally, the condominium market, particularly condominium conversions, has had quite an impact on the multi-family sector and this market is heating up in Northwest Arkansas as well. As apartment units are taken off the market, new supply will be needed to keep up with demand. The national condominium market is expected to cool in the coming year as affordability begins to affect the trend.

At this time the multi-family market in Northwest Arkansas is not expected to be adversely affected by the growing condominium trend.

(Note: Real Estate Market Data Inc. identifies at least 90 percent of the total multi-family market within Northwest Arkansas. The market includes: Fayetteville, Springdale, Rogers-Lowell, Bentonville and Siloam Springs. All projects identified in the survey contain six or more units.)