Arkansas’ commercial real estate market in 2021 was one of the strongest in years, according to industry experts.
Especially robust was the multifamily segment, boosted by a variety of factors ranging from rising inflation, high construction costs for new homes and the continued popularity of regions such as northwest Arkansas.
“There was volume I haven’t seen in a long time,” said Ramsay Ball, the principal at Cignus Real Estate in Bentonville.
Isaac Smith, the president of Colliers Arkansas in Little Rock, said, “No doubt, the market in my 20 years is as strong as it has ever been.”
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The Largest Commercial Real Estate Deals in
► Benton County
► Pulaski County
► Washington County
Arkansas Business compiled a list of the top commercial real estate deals consummated in 2021, and the numbers for Benton and Washington counties, in particular, were noticeably higher. In 2019, the last full year before the COVID-19 pandemic threw the economy into a state of chaos and change, 25 commercial properties in Benton County sold for $3.15 million or more; in Washington County, 25 sold for $3.025 million or more.
In 2021, as the pandemic raged amid vaccines and new variants, Benton County saw 25 properties that sold for $7.8 million or more. Washington County was home to 25 that sold for $6.4 million or more.
In Pulaski County, the heart of the state, the prices didn’t show a similar increase, although there was more activity in the commercial market across the board.
“It was definitely more heated, and I think that will continue,” said Clinton Bennett, a longtime real estate developer who started Bennett Commercial Real Estate in 2020 in Fayetteville. “Barring some troublesome macroeconomic event popping up, if this economy continues to move the way it has been moving, then I think we will continue to see larger and larger deals in this market in the coming years.”
Home Sweet Home
The state’s popularity has picked up among out-of-state residents and investors in recent years.
Northwest Arkansas, of which Benton and Washington counties form the core, has been one of the fastest-growing regions in the country during the past decade. The strong economy, based on the presence of business titans like Walmart Inc. of Bentonville, Tyson Foods Inc. of Springdale and J.B. Hunt Transport Services Inc. of Lowell, has fueled the population growth.
Those new residents need places to live. That has resulted in a booming residential housing market that has seen home prices rise, resulting in a growing need for multifamily developments.
The three most populous counties in the state have experienced an increase in multifamily transactions. These include traditional apartment complexes, duplex or condominium units or assisted living facilities.
Of the top 25 commercial properties sold in Benton County in 2021, 15 were multifamily, compared with eight two years ago. In Washington County, the number was also 15, up from nine in 2019.
Pulaski County had 18 multifamily among its top 25 commercial properties sold in 2021, an increase of one from 2019.
“Typically, northwest Arkansas is way ahead of central Arkansas on the growth curve, and [northwest Arkansas] still is in the multifamily space,” Smith said. “But we are in the conversation. Denser population helps drive that.
“We don’t do much multifamily, but we are going to change that. The multiples that these apartment complexes are trading across all classes, the demand for new construction, is unbelievable.”
It’s not just newly built apartments that investors are scooping up. Because construction costs are rising, many investors are finding value in buying existing, even aged, properties under the theory that acquisition and renovation are still cheaper than new construction.
“We saw properties that were sitting on the market for quite some time that you would make an offer on and the broker would say, ‘Actually, we have a couple of offers,’” Bennett said. “It was not uncommon to see properties that had gone stagnant but they came to life very quickly this past year.”
Industrial Market Exploding
Commercial real estate is more than just apartment complexes, of course. Industry experts said the market has also shown strength in industrial spaces such as warehouses, distribution centers and flex spaces.
The problem with industrial is a national one: scarcity. Smith said a national report by Colliers showed 400 million SF of industrial space is under construction or in development and 1 billion SF is needed. The supply and demand dilemma isn’t going to change anytime soon.
“We are seeing the absolute explosion of the industrial market,” Smith said. “The distribution side is driving that, but because people are buying things, manufacturing needs are driving expansion.
“It is out of control, and it is just now hitting Arkansas.”
The recent surge in inflation is driving some of the commercial market activity. During inflationary periods, investors often put their money in hard assets rather than investing in stocks and bonds or the like.
Arkansas’ growing reputation as a real estate investment value — either in northwest or central Arkansas — has attracted such investors from more affluent areas of the country. A lot of out-of-state money is buying up apartments and office buildings and medical facilities.
“The majority of people who come into our office and we are seeing them from Chicago and Miami and New York — it is stunning how many new investors have found this market and are coming in and looking around town — a majority of them are looking for multifamily opportunities or residential development opportunities,” Bennett said.
“When you think about these commercial real estate investors, what they are really looking for is a stable series of cash flows. If you can get them in an RV park or a self-storage or a marina or independent living, they don’t care.”
The industry experts said the commercial real estate market looks fundamentally strong and nothing like a bubble, but rising interest rates could slow down some of the growth.
“There is no doubt that this last year was one of the best ever in commercial real estate,” Ball said. “I haven’t seen anything cooling off yet. It looks like things will continue for a period of time.”