While Walmart Inc.’s new headquarters in Bentonville propelled the value of commercial building permits to record highs during the first half of this year, the rest of northwest Arkansas generated its own sizable increases over the previous year.
The world’s largest retailer alone got $435 million in construction permits for the 350-acre project east of J Street, according to the latest Arvest Bank Skyline Report, released in September.
But set aside those permits, and Benton, Washington and Madison counties still produced commercial building permits valued at $212 million, an 8% increase over the first half of 2020, when the figure for the entire region stood at $196.2 million. It’s also a jump from the $188.8 million generated in the second half of 2020.
Taken together — that is, Walmart’s HQ and the rest of the region the Skyline Report tracks — commercial building permits were valued at $647 million during the first half of 2021.
Isolating the rest of northwest Arkansas from the outlier that Walmart’s permits represent shows both just how vibrant the region is and how that vibrancy is enhanced by the construction activity of the retailing behemoth.
“There is a lot of commercial activity going on,” said Mervin Jebaraj, director of the Center for Business & Economic Research at the University of Arkansas’ Sam M. Walton College of Business, which is the lead researcher for the Skyline Report.
“I think people want to take advantage of everything going on in northwest Arkansas and get their projects done.”
Walmart announced plans for a sprawling new headquarters campus east of J Street in September 2017. It is scheduled to open in phases during the next few years with construction continuing despite the COVID-19 pandemic.
Real estate experts said Walmart’s home office is pushing some of the activity in Bentonville. Actions taken by the world’s largest retailer drive decisions by “Vendorville,” the satellite of vendors that do business with the publicly traded company.
“It will definitely spur more [activity] closer to the new headquarters,” said Marshall Saviers, CEO of Cushman & Wakefield/Sage Partners of Rogers.
Saviers will oversee management of the Ledger, a 230,000-SF office building on Main Street, just off the downtown square and a short drive from Walmart’s new headquarters. The Ledger will be six stories with switchback ramps outside to give access to each floor to cyclists and pedestrians.
The building’s owner, Josh Kyles, said the added amenities were needed because of the expected tenants.
“The market, as it matures — and Walmart has reinvested to keep their presence here — so office tenants are going to demand nicer space,” Kyles said in March. “It may be smaller space or it may be more [space], but altogether they need nicer space to recruit better employees.”
New Buzzword: ‘Flexible’
The pandemic has changed the where and way people have worked because safety protocols resulted in many employees working from home or otherwise remotely.
The end of the pandemic, whenever that will be, will probably not result in a mad rush back to the office by every worker. Even those who have returned during the pandemic have returned to a new work environment.
Saviers said the new buzzword is “flexible.” Saviers said interest in the Ledger’s space has been high but more requests are coming in for hybrid offices for workers who will be in and out of the office.
“We have a lot of prospects who want to look at this flexible office model,” Saviers said. “It is a different way to office, but it seems like coming out of the pandemic — which hopefully we are — folks want to see what will happen in Bentonville with the shifting of the home office. People do want to office and they do want to have more flexibility in where, when and how they office.
“You need to make your building more like that, with more amenities and less than a private office. They still need security and safety and all that, especially if you are a Walmart vendor. You can’t just build an office building with no amenities that’s not walkable or bikeable and expect it to succeed, especially in Bentonville.”
Butch Gurganus, the president of Focus Commercial Real Estate in Bentonville, said the city has a strong market. He said the pandemic’s reordering of work environments has caused many large employers to look at downsizing office space while smaller companies are looking for bigger space with nicer amenities.
Jebaraj said there was a “great perception” that everyone was working from home, but Benton County has experienced only a 25% reduction in office workers.
“People are still going to need office space,” Jebaraj said. “It doesn’t really change the overall office space required. It will change the design of how office space is done. There will be less open space and more cubicles and offices and some meeting areas for remote workers.”
‘It’s Just Crazy’
Mike Bender, the public works director for Bentonville, said the city has seen robust commercial growth throughout the city. The Walmart project is certainly the keystone but it hasn’t seemed to cause any spike — or drop-off — in building and planning.
“What happened before has continued to happen,” Bender said. “There is definitely no slowdown. We are just growing everywhere. It’s just crazy.”
Ramsay Ball said Walmart is driving the Bentonville market, as it has for many years. While the Ledger is the only large office building opening soon in the downtown area, Ball said he is working on several developments for clients.
“The Bentonville real estate market is thriving. There’s no other way to say it,” said Ball, the principal at Cignus Real Estate in Bentonville. “Walmart is so strong that there is a super positive effect on everybody. They don’t really compete in the general tenant market, but they amplify what goes on there with all the vendors. Things are surprisingly resilient, and there are a lot of companies looking for office space right now. They are expanding or contracting; that has always been the modus operandi in Bentonville.”
One complication is the rising price of land in Bentonville and everywhere else in northwest Arkansas. A developer who has to pay a lot for land to build an office may find he has to charge too high a rent to make a project feasible.
There are also the pandemic-related supply chain costs of construction material and labor that have increased the price of developments.
“Long term, it will be a great thing for northwest Arkansas,” Saviers said. “We just have to go through some growing pains to get all these projects built up. It’s hard to see what the new normal is. We are starting to see a lot more activity on the office front where people want to go on tours and see the new buildings. For a while no one was able to do that or wanted to do that, understandably.”
