No Boom, No Bust in River Valley

Those entrenched in Fort Smith’s commercial real estate market weren’t subjected to the extreme roller coaster-style ride their counterparts in Northwest Arkansas endured over the past few years.

Instead, the experience of the players in Fort Smith more closely resembled a kiddie-park ride.

“Our market, in general, was never as high or as low as Northwest Arkansas,” said Damon Wright, principal broker at Fort Smith-based Nunnelee & Wright Commercial Properties.

That seems to be the accepted – and preferred – norm in the River Valley.

“We’ve always been slow and steady – nothing spectacular – growth-wise,” said Mark Buergler, a vice president at BancorpSouth Bank in Fort Smith.

“If we can just see consistent growth,” Wright added, “I don’t think we need the highs and lows.”

Recent data collected by the Northwest Arkansas Commercial Data Exchange, which is supported by Xcelingent Inc., shows that’s apparently the case these days after a dip in activity throughout much of 2009. While the Commercial Data Exchange acknowledges its efforts to collect accurate data in the greater Fort Smith area are ongoing, its snapshot of the retail market, in particular, reveals a relatively accurate occupancy rate of 66 percent.

 

Battle of the Big Box

That rate likely would be significantly higher were it not for a glut of vacant big-box properties in Fort Smith.

Bob Cooper, executive broker at Fort Smith’s R.H. Ghan Commercial Properties, said there is “easily” 200,000 SF of such space currently available. The bulk of that is the result of the closure of the city’s Kmart and the 2008 opening of Fort Smith Pavilion.

The pavilion, anchored by a 127,000-SF Target store, prompted the move of several businesses – Old Navy, Petco and Best Buy among them. The result was a lot of 20,000 plus-SF spaces that have been hard to fill.

“That part of the city needs to be serviced with restaurants and retail and all of that,” Wright said of the area near Phoenix Avenue and Old Greenwood Road, “but what we would’ve like to see were new tenants coming in there rather than old ones moving out there.”

Still, Matt Lukas, vice president and partner of Austin, Texas-based Merchants Holding LLC, which developed Fort Smith Pavilion, said the moves have paid off for the retailers. An occupancy rate of more than 90 percent provides concrete support for that belief.

“They were doing great before and now they’re doing even better because they’ve got good neighbors,” Lukas said of the businesses that moved. “The thing about Fort Smith is that I think the retail was a little fragmented.”

Now brokers like Wright and Cooper are trying to find entities to fill the empty big-box spaces. That was an unenviable task during the ‘09 downturn, but Cooper said interest from national retailers has picked up since February.

Some of those looking to expand might find a fit in one of the vacant big-box properties.

“I’ve got 10 of them in my head right now,” Cooper said with a chuckle, “but I don’t really want to talk about them.”

Otherwise, Wright said the challenge is to “re-invent” those large types of spaces. That can be done in a number of ways, chiefly either bringing in non-retail tenants like churches or dividing the one big space into several smaller spaces.

“The landlords will do about anything at this point to get a tenant in there,” Wright said. “We’ll look at anything.”

 

Office Space

Retail space often can be converted to office space, too, Wright said. Add that to the fact a lot of smaller, individual office spaces aren’t always listed with realty companies, and there is at least part of the explanation needed to address a discrepancy in office-space occupancy rates.

While the CDX’s figures show an occupancy rate of about 59 percent, Cooper and Wright put it at somewhere between 65 and 75 percent. Cooper said there simply aren’t a lot of current office vacancies in Fort Smith.

“There might even be a need for an office park here,” he said.

Such a speculative stroke, however, would be an exception in the River Valley. While there was wild speculative building in Northwest Arkansas during its ballyhooed boom period, those in Fort Smith continued to play things much closer to their vests.

“There wasn’t a lot of speculation building, certainly nothing like a big 100,000-SF space,” Cooper said. “Speculation building around here is a 16,000-SF retail strip center with a 10,000-SF tenant sewed up.”

Making speculative building even more complicated nowadays, several parties said, is the fact banks have tightened considerably during the national recession.

“Raw land is sitting still,” Wright said, “and I think that goes back to the fact the banks are not lending money for speculative building.”

Buergler essentially acknowledged that notion.

“It takes a while to get things approved because there’s obviously more scrutiny,” he said.

Even so, there are some factors – especially in the industrial sector – that could result in a loosening of purse strings. Mitsubishi, for example, is expected to begin construction on a new wind turbine plant at Chaffee Crossing this fall.

“We’re hoping some of their suppliers decide they need to be closer,” Wright said. “We’ve got plenty of room for them right here.”

While the CDX reports greater Fort Smith’s industrial occupancy rate at just 25 percent, Wright and Cooper put it closer to 40 to 50 percent. Wright said activity in the industrial segment might even be “a little bit higher” than in office or retail.

The Big Picture

Regardless, Wright and Cooper agree that overall activity has rebounded significantly from the doldrums of 2009.

“Knock on wood, that was definitely our low point,” Wright said.

That low came on the heels of perhaps surprisingly profitable years in 2007 and 2008, a period during which Fort Smith’s neighbors farther north were becoming embroiled in a variety of struggles.

“I would say 10 out of every 25 people who came through our door leased or bought something,” Cooper said of that time. “We couldn’t get to the closing table fast enough.”

In 2009, though, fewer people came through those doors. The telephones stopped ringing as much, too.

But while the slowdown was enough to cause concern, it did not prompt panic. Cooper said it didn’t approach the point at which “people were closing their doors and getting other jobs.”

Then, beginning in February, Cooper and Wright agreed, activity began to pick up, likely bolstered by rising confidence in the economy on a national level. Cooper said the interest from multiple sectors, including national retailers, restaurants and manufacturers, has put R.H. Ghan “on pace to surpass last year by far.”

“We’ve done some deals this first half of this year that we didn’t see at all in ‘09,” Wright added.

Does that mean Fort Smith’s commercial market is completely back on track?

“It’s a hard question to answer, because like I’ve heard a lot of other people say, ‘I don’t have that crystal ball,'” Wright said. “It’s getting better, but I don’t see it rebounding as strong as it was two or three years ago.”

Nevertheless, Wright and the other players seem to be OK with the current bounceback. That might be most evident in the goings-on at Chaffee Crossing.

Despite all of the area’s potential, builders, developers and brokers alike are taking a cautious approach.

“It’s not a mad dash out there,” Wright said.

Maybe that’s part of the reason those in Fort Smith missed out not just on the thrilling market peaks those in Northwest Arkansas saw, but the terrifying plunges, too. Or as one Fayetteville construction insider put it: “There was never a boom, but there was never a bust, either.”