The occupancy rate in the Pulaski County industrial market continues to hover around 90 percent. During the first quarter this year, occupancy stood at 89.3 percent among 45.4 million SF tracked by Central Arkansas Commercial Data Exchange.
The inventory is housed among 857 buildings divided among four industrial categories: warehouse-distribution, manufacturing, light industrial and flex space.
“We’re starting to notice improved activity,” said Rick Freeling, director of sales for Little Rock’s RPM Commercial. “It’s not gigantic, but it is an uptick. We’re not seeing a massive amount of growth taking up big blocks of space. It’s been a steady drip of activity in the market.”
First quarter occupancy rates were 89.2 percent in 2015 and 89.3 percent in 2014. But even an upward creep in occupancy may not be enough to push new construction.
“Lease rates are just going to have to trend upward,” said Drew Holbert, industrial specialist with Colliers International-Arkansas. “You still find Class A bulk space with a $3 in front of it. The people that are looking in the market, they’re not willing to pay a new-building rate.
“That base vacancy rate is deceiving. A lot of that vacant space is functionally obsolete space. We’re still seeing activity, but it’s getting more and more difficult to find quality product.”
Who is most likely to step out and develop some speculative warehouse space in the market?
“National spec developers don’t tend to dabble in a tertiary market like Little Rock,” Holbert said. “It will take a regional or local developer to make it happen.”
Low interest rates aren’t enough to push new construction, but favorable financing is helping fuel acquisitions.
“The activity has been pretty good,” said Gary Smith, director of business development at Little Rock’s Flake & Kelley Commercial. “A lot of people are buying. The 20,000- 50,000-SF market has been selling and leasing great.”
Four of the largest warehouse transactions in Pulaski County during 2015 were:
• The 60,600-SF CLM Pallet Recycling facility at 701 Carnahan Drive in Maumelle, nearly $4.4 million.
• The 117,650-SF Shackleford Corporate Center at 4201 S. Shackleford Road in Little Rock, more than $3.6 million.
• The 57,705-SF warehouse at 1316 North Hills Blvd. in North Little Rock, $2.9 million.
• The 87,100-SF warehouse at 6700 Sloane Drive in Little Rock, more than $2.5 million.
The pricing gap between new and existing space has created a seller’s market with higher price expectations as well as a landlord’s market where improvement costs can be readily shifted to tenants.
“People are circling,” said Dan Robinson of Little Rock’s NAI Dan Robinson & Associates. “But there is such a disparity between new construction and existing space. The question becomes: What will it cost to upgrade the existing space?”
A healthy dose of space shopping and tire-kicking of properties reflects activity that may not be obvious from the outside looking in.
“It continues going in the right direction, but owners would like to see rents reflect availability,” said Stuart Mackey, vice president of brokerage with Little Rock’s Coldwell Banker Commercial Hathaway Group. “And that hasn’t happened quite as directly as you would expect in terms of supply and demand.
“Some projects are proposed, but nothing is coming out of the ground. We’re getting to the point where functionally obsolete properties are just that.
“The desired height for warehouse space is now 34 feet. The cubic volume is getting to be more important than gross SF.”
It’s another variable that is tipping the scales toward new construction while developers wait for lagging lease rates to catch up.