Vacancy rates for the northwest Arkansas office space market dropped almost one-half percent to 9.3 percent during the first quarter of 2014. The rate was 9.7 percent in the last quarter of 2013, according to data collected by Xceligent Inc. of Independence, Mo.
Xceligent surveyed more than 10 million SF in Washington and Benton counties. The national vacancy rate average is 15.8 percent, according to the National Association of Realtors, and the Xceligent report said northwest Arkansas’ rate would increase to 12.6 percent if large corporate offices owned by companies such as Walmart, Tyson and JB Hunt were excluded.
Realtors are noticing a pick-up in office demand, and said the market is beginning to see a response on the supply side. Grady Mathews of Newmark Grubb Arkansas, in Bentonville, said his company has made a dozen office-space deals since January.
“It wasn’t as long and drawn out,” Mathews said. “It was people ready to make a commitment, not just people kicking the tires.”
Mathews said Newmark Grubb Arkansas is working on a development in Bentonville Plaza that could provide more than 250,000 SF of space. In these post-recession times, though, developers are proceeding with caution to ensure that any newly built space has some sort of tenant guarantee.
Mathews said the new building at the plaza could be anywhere from five to nine floors, depending on how much space is pre-leased.
“It needs 30-35 percent before it comes out of the ground,” Mathews said. “It’s less speculative building and more tenant-specific building. Interest has been increasing over the past six months.”
Butch Gurganus of Colliers International in Bentonville said the current market is a landlord market because new construction hasn’t caught up to the increases in demand. That’s not surprising because deals to develop large-scale office spaces of 20,000 SF or more, can take longer than a year, Gurganus said.
“Nobody has built anything,” Gurganus said. “There have been a few things here and there. No one is building spec buildings. They all want one [anchor] tenant.”
Gurganus said an 8 percent vacancy rate is a sign of a healthy market in an area such as northwest Arkansas. Northwest Arkansas’ rate has dropped in the past year from 11 percent in the first quarter of 2013, according to Xceligent.
“It’s not a scary number,” Gurganus said. “You don’t want to go start building a lot of projects.”
Marshall Saviers of Sage Partners in Bentonville said his company had a 60,000-SF building that was a converted warehouse get nearly completely leased in one year. Sage Partners and Colliers International combined to sell a 42,000-SF building on SE S. Street to Infosys for approximately $6.5 million.
“It shows there is quite a bit of pent-up demand,” Saviers said. “There’s going to be new construction in the next 12-18 months. It will be more measured than it was in the past. There are very limited options, and I’d say it going to be that way for the next few years.”