The COVID-19 pandemic has caused turmoil and operational adjustments in the business world, but real estate developers said the office market shouldn’t change much in northwest Arkansas.
That would certainly be good news for Josh Kyles, the investor behind the Ledger, the elegantly designed office building currently under construction just south of Bentonville’s downtown square. Kyles originally acquired the 1.5-acre property for $3.5 million in 2015 and then teamed up with WeWork, the New York office-sharing company, on elaborate initial plans for a 230,000-SF office building.
WeWork’s downward spiral since the building’s announcement in 2019 — a ceremony attended by Arkansas Gov. Asa Hutchinson — led to the company leaving the project. And that naturally caused concern about whether the project would be scrapped. Kyles, though, insisted repeatedly throughout the lead-up to construction that the Ledger would be built.
That held true even when the pandemic hit the United States last March. Ground was broken on the project, originally called the Bentonville City Center, at 240 S. Main St. in 2020 and construction has begun on the site of the building.
Kyles and Cushman & Wakefield/Sage Partners of Rogers said the building should be ready for occupancy by the summer of 2022.
Kyles said the decision to continue the project without WeWork, and during a chaotic 2020, was easy because he knew enough about real estate to know that location and demand were determining factors of any projects. Walmart Inc. of Bentonville fuels a critical demand for office space, and just off the downtown square was a prime location in almost any economy.
“You evaluate from location and demand; it doesn’t change how you evaluate projects,” said Kyles, who said he was not a professional real estate player. “The market, as it matures, and Walmart has reinvested to keep their presence here, so office tenants are going to demand nicer space. It may be smaller space or it may be more [space], but altogether they need nicer space to recruit better employees.”
The blueprints and rendering of the Ledger show an office building that is focused on aesthetics.
The six-story project has switchback ramps on the outside to give cyclists and pedestrians access to each floor. The Ledger was designed by celebrated Fayetteville architectural firm Marlon Blackwell Architects.
Not every office building will need all the bells and whistles of the Ledger, said Marshall Saviers, who will oversee management of the property as CEO of Cushman & Wakefield/Sage Partners. The interior of the Ledger was planned with a flex-concept in mind, as is the case with most new office buildings, but the Ledger’s exterior visuals and amenities were needed because of the location.
“It made sense in that location for a variety of reasons,” Saviers said. “That building and that great design were perfect for that location. Being close to Crystal Bridges and the Momentary and all the great architecture, it makes sense.
“The great thing about Bentonville is there are a lot of talented folks who are really focused on design. When we put together the design of the building, the developer and everyone wanted to make sure it met up to the standards of what was happening in Bentonville. It really pushed design forward.”
Kyles said he wouldn’t want to compare the Ledger to nearby museums such as Crystal Bridges or the Momentary, but he did say that those architectural landmarks set the tone for the Ledger.
“This building was to be an amenity for downtown and the amenities of the building are downtown [itself],” Kyles said.
Saviers and Jordan Jeter, a partner with Kelley Commercial Partners in Springdale, said there is a “flight to quality” by companies that understand that employees want to work in an inspiring environment. It is a trend that predates the pandemic, which made many employees remote workers because of safety precautions.
“People want an office in a new building,” Jeter said. “If they are building it now they can change it up to make it more COVID-friendly.”
Many expect that when employees return to work, office space will be adjusted because of pandemic influences. The open floor plan will be less popular and there will be a return of more separated work spaces, either through individual offices, cubicles or some other form of division.
One advantage of the Ledger project is that Kyles had the resources to continue the project with or without WeWork’s involvement.
Saviers said he has received numerous calls from companies wanting to lease space at the Ledger when it opens more than a year from now. Saviers said the Ledger will hold to the current trend of flex spaces, which offers companies a variety of space and lease options.
Kyles said space in the Ledger would be available for companies that have one employee or companies that have 1,000. Saviers said companies will be able to lease small spaces for a short duration, giving them the ability to grow into a bigger space if the company grows.
“What is going to be a function of many of the buildings moving forward is this flexible office design,” Saviers said. “It can flex up and down depending on how many people are working remotely, how many people are at the office, how fast your company is growing. That’s not going away. It is going to intensify post-pandemic.”
Philip Schmidt, like Jeter a partner with Kelley Commercial, works predominantly in the office market in Fayetteville, which is seen as less competitive than its northern counterparts in Bentonville and Rogers. Schmidt said offices in Fayetteville may need fewer extravagant visuals but flex space is just as important.
“You don’t have to be quite as competitive down here because you don’t have all the competition with all the other buildings trying to attract tenants,” Schmidt said. “There comes a point if you pay so much for the dirt and obviously construction costs are at an all-time high right now, what can you put into the building and charge to a tenant to still make your numbers work without being astronomical on the rent rate? Different tenants have different budget levels for their office space.”
Saviers said the office market has somewhat stagnated because companies are still taking a wait-and-see approach until the pandemic ends. That makes him even more optimistic about 2022 being a banner year for the industry.
If the Ledger opens as scheduled, it will be right in the thick of the potential office market resurgence.