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Skyline Report: Commercial Permits Up; Multi-family Vacancy Rates Drop in NWA

3 min read

Arvest Bank on Thursday released its Skyline Reports on commercial and multi-family real estate in northwest Arkansas for the last six months of 2014.

According to the latest report, the latter half of 2014 saw a surge in the number and value of commercial building permits in every sector. From July 1 to December 31, 2014, there were $153. 5 million in commercial building permits issued in Washington and Benton counties, up from the $70 million in permits issued in the second half of 2013, the report said.

Other highlights detailing the regional real estate scene from the report:

  • A total net absorption of 239,904-SF was the result of 691,946-SF becoming occupied, while 452,042-SF were added to the commercial real estate market.
  • The overall vacancy rate for commercial real estate in NWA was 11.8 percent, up from the 11.7 percent reported in the first half of 2014.
  • The largest gains in absorption came in the retail and office/retail submarkets. 

“The story is that there is a significant increase in building permit activity despite the somewhat elevated availability of commercial,” said Kathy Deck, lead researcher for the Skyline Report and director of the Center for Business and Economic Research at the University of Arkansas.

“That illustrates that what space is readily available is not in high demand for the market. It is in the wrong location, or is the wrong type or wrong size,” she said. “But the activity definitely increased across both Bentonville and Rogers to a degree we have not seen since 2006 and across the various categories of space.”

More: Click here (.doc) for a report summary; here (PDF) for highlights of the multifamily report; and here (PDF) for highlights of the commercial report.

Dax Moreton, loan manager with Arvest Bank in Prairie Grove, said the report revealed a mix of custom building and speculation building in the commercial sector.

“It’s important to note that, even in the speculation projects that we are seeing, the builders are taking great pains to make sure the largest space or the majority of the project is pre-leased before beginning the build,” he said. “So the increase in building is being carefully considered and does not appear to be attributable to exuberant over-estimation of the market.”

Deck said vacancy rates in every market were at the bottom of the range for sustainable levels in the multi-family real estate market. She noted overall vacancy rates for northwest Arkansas decreased to 3.7 percent in the second half of 2014, down from the 5.8 percent reported in the same period of 2013 and down from the 6.5 percent reported in the first six months of 2014.

Other items of note from the report:

  • Bentonville had the largest year-over-year decrease in vacancy rates, 1.4 percent in the second half of 2014 from 6.3 percent in the second half of 2013.
  • Fayetteville also reported decreased vacancy rates, 5.3 percent at the end of 2014 compared with 7.7 percent reported during the same period of 2013.
  • In Bentonville, more than 1,000 new rental units have been announced or are under construction. In Fayetteville, close to 4,000 new rental units have been announced.

“Some of the decline in vacancy rates in rental properties can be attributed to some fear of the single family residential housing market and uncertainty on behalf of the renters on whether they can qualify for mortgages,” Deck said. “The market is responding to the demand with the new properties we’ve seen announced in the past year, especially in Bentonville and Fayetteville.

“With almost 4,000 units announced in Fayetteville, not all of those are going to be student-targeted projects. We’ve seen strong employment growth in northwest Arkansas and all the multi-family data we are seeing aligns with that growth.”

The average monthly lease price for a multi-family property unit in NWA increased to $ 576.23 in the second half of 2014 from $568.80 in the first half of 2014, the report said. The average monthly lease rate per square foot was 68 cents, up one cent from the 67 cents reported in June 2014.

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