The COVID-19 pandemic, whose effects began in March, hasn't slowed the northwest Arkansas real estate market.
The latest Arvest Bank Skyline Report, released Tuesday, showed the area's residential, commercial and multifamily real estate segments experiencing strong demand in the first half of 2020. The biannual report examines the three real estate markets in the region's key business areas; it is sponsored by Arvest and conducted by the Center for Business and Economic Research at the University of Arkansas' Walton College of Business.
"So far the pandemic has not seemed to hurt the real estate market in the region, and the three areas measured by these reports continue to reflect a consistent balance between supply and demand," said Mervin Jebaraj, the director of the CBER. "Part of that consistency is a continued contraction in the supply of homes for sale across the region, which continues to drive home prices higher."
The report said the number of homes listed for sale in Washington and Benton counties dropped nearly 50% from 2,357 to 1,206 when the first half of 2020 was compared to the same period of 2019. The number of available lots for new home construction fell to 3,896, the lowest for the area since the Skyline Report started analysis in 2004.
That tight market has resulted in an increase in the average sale price of each home sold in both counties. In Benton County, the average sale price was $272,574, an increase of 8.8% from a year ago, and the average Washington County price was $248,501, up 5.3%.
Compared to five years ago, Benton County's average sale prices has increased more than 36% and Washington County's has increased nearly 28%.
Jebaraj said the pandemic may have slowed people marketing their homes for sale but "historic" low interest rates were encouraging home purchases. The report said that 28.5% of home purchases were of newly constructed homes, the highest percentage Skyline Report has measured.
"Until more inventory is available, it will be difficult for homebuyers to find a home to buy," Jebaraj said.
Fewer Office Workers, More Space
Vacancy rates in multifamily increased from 3.5% in 2019 to 4.8% in the first six months of 2020, a change the report credited to new complexes being completed. The report said new construction is still strong with more than $481 million in building permits issued in 2020, a record for the region and more than $100 million more than the previous record of $372.9 million set in the second half of 2018.
The interesting pandemic effect, or lack thereof, may be on the office vacancy rate, which was 10.8% in 2020, compared to 11% in the same period a year ago. While the pandemic has resulted in many businesses and employees switching to a work-from-home model, the need for office space hasn't crashed, which Jebaraj said was due to new space requirements for existing and new offices.
"So far the office submarket has remained stable despite the increase in employees working from home," Jebaraj said. "At this point it seems that even if the work-from-home trend continues, it will likely not have a significant impact on office space in the region as any potential loss from remote work will be offset by the need for more space per employee. We are hearing that many high-density open space plans will likely transition to more cubicles, walls and lower density for safety reasons."
The pandemic has seemed to have affected new commercial construction. After a strong first quarter with $154.1 million in building permits, the region saw a significant drop to $42.1 million in permits for the second quarter of 2020.
Still, permits are up for the year at $196.2 million from the first half of 2019 when the value of permits issued amounted to $166.4 million.
Another area that the pandemic has had a so-far minor effect is in retail space, where the vacancy rate rose to 10.6% in the first half of 2020, compared to 9.4% a year ago. Many businesses, of course, temporarily closed or reduced operations during the early months of the pandemic, and the area has just recently seen a relaxation in restrictions.
"With many retail establishments feeling the impact of the pandemic, it isn't surprising to have a small increase year-over-year in this submarket, and we will be watching this particular area closely in the coming months," Jebaraj said. "It is also important to note that, for the most part, this report doesn't include the majority of restaurant properties since many restaurants have standalone structures and are not renting space from retail developers."