Hunt Tower, under construction in west Rogers, is contributing to a surge in new office space.
David Erstine said only time will tell how successful the current and projected build-out of office space in west Rogers — and elsewhere in northwest Arkansas — is going to be.
Erstine, a vice president with CBRE in Fayetteville, said it’s no secret the burgeoning areas in the office real estate market are west Rogers and downtown Bentonville with north Fayetteville a distant third. West Rogers is the site of the prominent 10-story, 240,000-SF Hunt Tower under construction just off Pauline Whitaker Parkway.
West Rogers and downtown Bentonville have approximately 1.2 million SF of office space either under construction or in planned development. Erstine and other developers said it was likely, of course, that not all the planned developments would come to fruition but the theme is set.
“It is primarily all identified as Class A projects, and we’re starting to see a significant amount of new construction ramp up in the market pertaining to office,” Erstine said. “What we’re seeing currently is about 300,000 SF of space being added to the market in looking at only the Bentonville and west Rogers markets — just in those areas alone. That’s kind of the sweet spot for office users and the bulk of our inventory is in those submarkets.”
Grady Mathews of Sage Partners said he has several clients that are vendors for Wal-Mart Stores Inc. of Bentonville, and they are looking for top-end office space, known as Class A space. Mathews said many companies are entering the area while others are expanding their staff to the extent of needing more space to fit everyone.
“I have eight tenants that need expansion space because they’re adding people,” Mathews said. “I think that is a lot of what we’re seeing, increasing expansion space for existing tenants.”
The latest figures show that the vacancy rates for those two sectors are between 11 and 12 percent, which Erstine said is a healthy rate. Too much vacancy kills rates, while too little vacancy restricts movement.
Another important statistic is the overall absorption, which would suffer a bit if a company moves from a 10,000-SF space to a 15,000-SF space. Sure, 15,000 SF is being used, but a 10,000-SF building is now empty.
“The market needs more quality, efficient space,” said Marshall Saviers of Sage Partners. “A lot of these companies want to go to an open floor plan, a more collaborative atmosphere. A new office building allows them to do that.
“There’s more activity on space 10,000 SF or above than 10,000 SF or below, which is weird.”
Of course, no one wants to build and have demand crash as it did during the recession of 2007-09. Developers have the unenviable task of trying to balance how much to build to keep up with demand without over-saturating the market.
“That’s the crystal ball question,” Erstine said.
Building, though, is sometimes the only way to find space for tenants, who often have specific requirements for space and location. The Hunt Tower, being built by Hunt Ventures led by Johnelle Hunt, quickly filled up with promised tenants.
“These early deliveries are seeing quite a bit of activity on pre-leasing so there seems to be pent-up demand,” Erstine said. “I can say that most of the tenant reps in the market have a clear understanding that if you’re working with an office user that is in excess of 15-20,000 SF of space, it’s very difficult to find availability to meet your clients’ needs. The newer projects with larger floor plates and larger building sizes are really going after some of the larger users in our market. I think the initial wave will do well.”
Downtown Bentonville is another hot area for all segments of the market — “As close as you can get to the Bentonville Square is hot,” Saviers said — and north Fayetteville is popular with smaller office tenants such as doctors and financial service providers. A sleeping area, not quite a giant perhaps but certainly capable of robust growth, is Springdale, many developers said.
Springdale has seen some developments arise near Interstate 49 with the new Walmart Supercenter on Elm Springs Road, and Sam’s Club recently bought 71 acres near Arvest Ballpark for $12.4 million. A 30,000-SF office building for BNSF Logistics is currently under construction along the east side of the interstate just north of the new Don Tyson Parkway.
“I think in the next year or so you’re going to see some really good stuff in Springdale,” said Mathews, who included the downtown area in his assessment. “I really feel like west Springdale could keep growing if Tontitown would work with Springdale. I think you’re going to see that in Springdale, where it’s going to grow, but it’s still going to have its more cultural feel than what you get in downtown Bentonville.
“There’s good stuff all along the main corridor still.”
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