Economist Urges Restraint on Student Housing Projects

Officials at the University of Arkansas announced last week an enrollment of 24,537 students on campus, a record total and a 5.8 percent increase from the fall semester last year.

Even with that report, UA economist Kathy Deck urged restraint for student housing developers who have seemingly planted a bull's-eye on the area as a target for increased multifamily construction.

"Given the history of enrollment growth, we are not going to see enough student population growth to fill all these new apartments together with the existing stock," she said.

Deck expressed her concern in the most recent Skyline Report, a bi-annual analysis of the different property markets in Benton and Washington counties.

Multifamily and commercial market data from the first six months of 2012 are the focal point of the latest study, which is sponsored by Arvest Bank and conducted by the Center for Business and Economic Research in the Sam M. Walton College of Business at the UA.

The encouraging news, according to the report, is that multifamily vacancy rates dropped to 5.1 percent at the end of the second quarter, a marked decrease from the 6.1 percent reported at the end of 2011. It is the lowest vacancy rate reported for Northwest Arkansas since the third quarter of 2005.

Deck, the center's director and lead researcher for the Skyline Report, said the decline is a sign the market could be considered "developable," but the number of units already announced and in the pipeline is a concern.

The average monthly lease is up about $4 from the end of 2011, to $538.21. The average lease rate per-SF remained at 64 cents.

Rogers, which reported a vacancy rate of 5.4 percent at the end of 2011, had the lowest vacancy rate for Northwest Arkansas at 2.5 percent in June.

Springdale, Siloam Springs and Bentonville vacancy rates fell significantly from the rates reported at the end of 2011. Springdale's vacancy rate dropped from 10 percent to 7.5 percent, Siloam Springs' rate declined from 8 percent to 5.9 percent, and Bentonville's rate declined from 3.8 percent to 2.6 percent.

Fayetteville reported an increase in multifamily vacancy rates, from 5.1 percent at the end of 2011 to 5.6 percent at the end of June.

Vacancy rates in the commercial real estate market mostly showed improvement in the first half of 2012. A total of 747,424 SF of commercial space was absorbed as 43,139 SF were added, netting a positive absorption of 704,285 SF in the Northwest Arkansas market. The overall vacancy rate is 17.8 percent.

Only one submarket reported an increase in vacancy rates, and that is only in comparison with the vacancy rate reported at the end of the second quarter of 2011. The office/warehouse submarket reported a vacancy rate of 19 percent at the end of the second quarter of 2012, a decrease from the 21.3 percent rate reported at the end of 2011, but up from the 17.8 percent reported at the end of the second quarter of 2011.