The commercial real estate market in northwest Arkansas saw its overall vacancy rate drop below 10% for the first time since 2017 after a significant uptick in warehouse leasing.
The Arvest Bank Skyline Report, released Tuesday, says more than 1.1 million SF of commercial real estate space was absorbed in Benton and Washington counties in the first half of 2021. Combined with 246,000 SF of new commercial space hitting the market, the net absorption of 906,000 SF was the best the area has seen since the second half of 2012.
The overall vacancy rate in the region dropped to 8.9% from 10.8% in the second half of 2020. It was also 10.8% in the first half of 2020.
The warehouse segment led the way with nearly 560,000 SF of space getting leased. Warehouse vacancy was 6.6%, down from 8.3% in the first half of 2020 and 9.3% in the second half of 2020.
The retail segment saw its vacancy drop to 10.8% compared to 10% in the same period a year ago. Office vacancy rose slightly to 11.2% from 9.8%, and office-retail stayed unchanged at 10.9%.
The report is conducted by the Center for Business and Economic Research at the University of Arkansas’ Walton College of Business. It said the office segment had 165,000 SF of new space hit the market but only an approximate 1,000 SF was leased; the report said office consolidation and slower leasing because of the COVID-19 pandemic were chiefly to blame.
“The office market is dealing with pandemic-related factors as companies in the region adjust their office space to accommodate more employees working remotely,” said CBER Director Mervin Jebaraj. “From our discussions with area developers and property managers, we know this includes companies consolidating what were multiple leases or locations. We feel that this is a temporary situation and should have no long-term negative impact, as the need for office space continues to be strong as the region continues to grow.”
There were $647 million in commercial building permits issued in the first half of 2021, with approximately $435 million of that total associated with Walmart’s home office project in Bentonville. The remaining $212 million is still an improvement from $188.8 million issued in the second half of 2020 and $196.2 in the first half of 2020.
“What is evident from this report is that the commercial real estate market in northwest Arkansas continues to expand and, generally speaking, demand continues to keep pace with the growth,” said Kelly Carlson, commercial loan manager for Arvest Bank in Benton County.