Slow Market Reveals Some Positive Real Estate Trends (Commentary by Tom Reed)

Streetsmart NWA produces quarterly reports pertaining to the real estate market in Benton and Washington counties. The reports focus on the single-family residential, multifamily residential and commercial sectors of the market.

In articles that we have previously written for the Northwest Arkansas Business Journal, the attempt has been to present year over year or quarter over quarter changes in the addressed market sector.

Over the past two years the majority of the data has not reflected positive trends. It seems daily all we hear and read is negative with respect to the real estate market and the overall economy.

I want to assure you everything is not negative.

There are some positive signs in the real estate market in Northwest Arkansas, and some of these will be discussed in this article.

The single-family residential sector of the market is considered first. An encouraging sign in this sector is that for the past several quarters the category of complete but unoccupied dwellings has continued to decline, while the category of complete and occupied dwellings has continued to increase.

This is true for both Benton and Washington counties, and supports that the supply of newer vacant dwellings is gradually being absorbed.

Considering that the categories of dwelling starts and under construction have remained relatively flat for several consecutive quarters, new construction will be needed in the not too distant future or the market will have an insufficient inventory of new homes available.

This, of course, assumes that demand will at least remain at the levels experienced over the past year.

As of the second quarter of 2008, based upon the past four quarters absorption, there was over a one-year supply of newer homes in active subdivisions available in Benton and Washington counties.

Another positive sign in the single-family residential sector in Benton and Washington counties is that total home sales in the second quarter of 2008 exceeded the totals for each of the previous two quarters.

There had been a downward trend in each county since at least the second quarter of 2007. The year-over-year numbers, however, still show a decline.

Next, the commercial sector is considered. The primary area of concern here is professional office. Considering both class “A” and “B” office space together, the overall market vacancy rate in the second quarter of 2008 was between 23 percent and 24 percent, with the Bentonville market reflecting a rate between 27 percent and 28 percent.

Part of the reason for the high vacancy rates was the Superior Square office building in Bentonville. This professional office building came on the market in the third quarter of 2007. The building contains near 400,000 SF, with minimal occupancy.

Just recently this property was reported to have sold to the Sam’s Club. The structure will now be considered to be owner-occupied, and will be removed from the investment grade properties surveyed.

The effect of this on the overall market and Bentonville office vacancy rates is significant. Removing this building from the second 2008 survey results in the overall market vacancy rate decreasing to between 18 and 19 percent.

The Bentonville vacancy rate reduces to between 16 and 17 percent. These vacancy rates are still too high, however, are certainly an improvement over the previous numbers.

Recent 2006/2007 census data supports net population growth in the two-county area at just under 1000 people per month.

While this is slightly over 20 percent lower than at the peak in the 2004 to 2005 time period, it is still significant.

The rate of growth in non-farm payroll jobs has also slowed for the Fayetteville-Springdale-Rogers MSA from the peak in 2005, however, the June 2007/June 2008 numbers reflected a 1 percent increase while the U.S. non-farm employment declined a -0.2 percent for the same time period.

Population and job growth absorb housing and office space.

The local real estate market is not currently where it needs to be, however, compared to the majority of growth markets across this county, I think we can agree we are in better overall condition.

(Tom Reed is a partner is Streetsmart NWA. Company offices are located at 2804 Main Street, Suite C, in Johnson, Arkansas. The phone number is (479) 575-9100.)