Metro Little Rock Commercial Vacancy Rates Show Signs of Positive Improvement, Growth

Metro Little Rock Commercial Vacancy Rates Show Signs of Positive Improvement, Growth

The metro Little Rock commercial market continued its slow and steady march to COVID-19 pandemic recovery in the third quarter of 2022 with good news across all market sectors: vacancy rates were down.

These small, positive gains in the industrial, retail, and office markets send a signal that our local market is showing consistent, steady improvement nearly every quarter.

Industrial Vacancy Rates Get Even Tighter

The industrial sector continued its meteoric rise with the tightest vacancy rates on record: down from 4% in Q2 to 3.4% in Q3.

Throughout the pandemic, the metro area has experienced such a demand for warehouse/industrial facilities that it exposed the fact that there simply wasn’t enough supply to meet demand. In response, several spec facilities have been built or are under construction to better accommodate users such as Central Commerce Center along I-40 in North Little Rock (completed May 2022) and the new South Port Commerce Center, a 500,000-SF facility at the Port of Little Rock that broke ground in Q3.

Additionally, flex space (properties with a combination of office and warehouse space) vacancy tightened from 8.4% in Q2 to 7.5% Q3, another strong signal for this sector.

Restaurants Provide Bounce to Retail Sector

The retail industry continued to strengthen during Q3 – probably due to the influx of restaurants in the area – with vacancy rates falling from 14.4% in Q2 to 13.7% in Q3.

By far the biggest news in new retail for Q3 was the announcement that Top Golf is building its first Little Rock facility at Village at Brodie Creek on Colonel Glenn Road adjacent to I-430. The metro area also saw several significant retail sales in Q3 including Pavilion in the Park, a 90,921-SF retail center that is now a mixed-use medical office/retail facility, which changed hands for $8.5 million in August; the former Playtime Pizza, a 70,420-square-foot facility in south Little Rock that sold for $5.95 million; and Chenal Commons a west Little Rock strip center that sold for $15,895,728.

Office Market Vacancy Rates Dip, Signaling Stabilization

The office sector has been a source of concern nationwide since the pandemic sent scores of office workers home in 2020 and many employers held off on requiring their employees to return to the office or implemented permanent work-from-home policies.

While Little Rock didn’t fare as poorly as some larger cities did, our area did experience higher-than-average vacancy rates especially in the downtown submarket. This year brought better news with vacancy rates falling in Q1, rising slightly in Q2 and falling again for Q3 to 13.4%.

As previously noted, the hybrid work environments are expected to stay in place with many companies, but leasing activity should continue to increase throughout 2022. As such, cost of new construction and the Federal Reserve’s continual raising of interest rates will, in turn, make second-generation office leasing an attractive alternative to purchasing and/or new development. It’s also expected that annual rental escalations and tenant improvement allowance requests will increase in order for owners to combat rising inflation.

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