Commercial Vacancy Rates Declining, Multifamily Rates, Prices Increasing

Positive absorption of existing space continues to bring down vacancy rates in the commercial real estate market in Benton and Washington counties.

That was the key finding of the latest Skyline Report, portions of which were released Thursday by Arvest Bank.

The bi-annual analysis of commercial, single-family residential and multifamily residential markets in Benton and Washington counties is conducted by the Center for Business and Economic Research in the Sam. M. Walton College of Business at the University of Arkansas.

A total net absorption of 656,523 square feet was the result of 713,186 square feet becoming occupied and only 56,663 square feet being added to the commercial real estate market overall in the first six months of 2014.

The largest gains came in the warehouse and office space sectors.

Vacancy rates decreased across all commercial submarkets with one exception. Medical office, which vacancy rate increased to 13.5 percent in the first half of 2014, was the only subcategory that reported an increase in the vacancy rate during the second half of 2013, up to 12.8 percent from the 12.3 percent reported in the first half of 2013.

Panelists said Class A office and retail markets continue to have the most potential for new growth in established “hot” locations, and multiple developers are willing to build.

“The increased level of new building permit activity reflects local optimism that the absorption of the last few years has created opportunities for new development,” noted Kathy Deck, lead researcher for the Skyline Report and director of the CBER.

In the first six months of 2014, $78.2 million in commercial building permits were issued in Northwest Arkansas, more than double the $35.5 million in permits issued in the first half of 2013.

Multifamily

Recent construction of rent-by-the-bed style student apartment complexes around the University of Arkansas in Fayetteville helped push the vacancy rates for multifamily real estate n Northwest Arkansas to 6.5 percent in the first half of 2014, up from the 4.0 percent reported in the first half of 2013 and the 5.8 percent reported in the second half of 2013.

With 16,194 rental units in 340 apartment complexes within Northwest Arkansas’ total of 31,802 units in 713 complexes, Fayetteville’s multifamily real estate market has the highest vacancy rate in Benton and Washington counties at 7.2 percent for the first half of 2014.

That figure is up from the 5.6 percent reported in the first half of 2013 but down from the 7.7 percent reported in the second half of 2013.

“The new purpose-built student multifamily housing in Fayetteville made local vacancy rates higher, but the rest of the market continues to be quite tight in Northwest Arkansas,” Deck said.

Bentonville also experienced a large jump, from 1.9 percent in the first half of 2013 to 3.7 percent in the first half of 2014. Rogers’ rate increased from 1.3 percent in the first half of 2013 to 2.2 percent in the first half of 2014 and Siloam Springs’ rate rose from 4.1 percent to 5.3 percent for the same time periods.

Only Springdale had a decrease, from 3.6 percent to 2.3 percent, in multifamily vacancy rates.

The average monthly lease price for a multifamily unit in Northwest Arkansas increased to $568.80 in the first half of 2014 from $556.71 reported in the second half of 2013.

The average monthly lease rate per-SF was $0.67, up just one cent from the 0.66 reported in December 2013. The by-the-bed rental units were by far the most expensive to lease at $1.36 per square foot, followed by studio at $1.23, 1-bedroom at $0.78, 4-bedroom at $0.71, 3-bedroom at $0.63 and 2-bedroom at $0.62.