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Low Vacancy Could Lead to Lease Rate Increases in NWA

3 min read

Vacancy rates in every market in northwest Arkansas for the first six months of the year were at the lowest levels ever recorded by Arvest Bank’s Skyline Report, which examines commercial and multifamily real estate in the region.

The latest version of the report, compiled by the Center for Business and Economic Research at the University of Arkansas’ Sam Walton College of Business, was released Tuesday.

The report’s lead researcher, Kathy Deck, said construction is needed to avoid significant lease rate increases. Vacancy rates for northwest Arkansas overall fell to 2.3 percent in the first half of 2015, down from 6.5 percent in the same period of 2014 and down from 3.7 percent in the last six months of 2014.

More: Download PDF summaries of the commercial report and the multifamily report.

Fayetteville, with its large college-focused rental supply, had the largest year-over-year decrease in vacancy rates, from 7.2 percent in the first half of 2014 to 3.6 percent in the first half of 2015. Most units in recently completed apartment complexes targeted toward college students have been absorbed and the demand is still growing, Deck said.

“Northwest Arkansas recorded continued, steady growth in population even through the years right after the recession,” Deck said in a news release. “During those years, there was an abundance of caution in lending and project development that caused a lag in multifamily construction. Most investors and developers wanted to make sure the recovery was real. That caution of 2013 and 2014 has now become a constraint on the market.”

In Bentonville, more than 1,100 new rental units have been announced or are under construction. In Fayetteville, more than 4,400 new rental units have been announced.

Bentonville reported the lowest vacancy rate for multifamily real estate with 0.4 percent in the first half of 2015, down from 3.7 percent in the second half of 2014. Rogers and Springdale both reported a vacancy rate of 0.9 at the end of the first half of 2015; Rogers’ rate was down from 2.2 percent at the end of 2014 and Springdale’s was down from 2.3 percent in the same time period.

“We have filled the vacancies as quickly as the new apartments have come on line,” Deck said. “They are still being built and continue to be quickly absorbed.”

Increased demand drives up the cost of rental space. The average monthly lease price for a multifamily property unit in northwest Arkansas increased to $581.72 in the first half of 2015 from $576.23 in the second half of 2014. The average monthly lease rate per square foot was $0.69, up one cent from the $0.68 reported in December 2014.

Commercial Real Estate

Deck said the report also shows increasing confidence in the commercial real estate market. Some businesses and companies are finally feeling that the economy has stabilized enough for them to move into newer and better space than they have previously occupied, a trend that the researchers are watching very carefully.

“There is a great deal of office construction right now,” Deck said. “We are watching to see who will backfill into the vacated spaces when the tenants move into better space.”

From Jan. 1 to June 30, there were $75.2 million in commercial building permits issued in northwest Arkansas, down from the $153. 5 million in commercial building permits issued in the last half of 2014 and from the $78.2 million in permits issued in the first half of 2014.

The largest gains in absorption came in the warehouse submarket with 256,346 SF, office submarket with 126,470 SF, and the office/warehouse submarket with net positive absorption of 3,268 SF in the northwest Arkansas market. 

The retail submarket had negative net absorption of 127,805 SF with 81,049 new square footage added and a negative absorption of 46,756 SF.

“The commercial market for real estate may have slowed a bit but we are still seeing positive growth overall,” Kent Williamson, senior vice president and loan manager with Arvest Bank in Springdale, said. “When the focus switches away from one particular sub-group, it moves to one that might have been slightly neglected in previous months. That cyclical pattern is good for growth and can act as a self-regulator to keep any one sector from becoming overbuilt.”

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