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Report: Commercial Real Estate Absorption Quickens in NWA

4 min read

The effects of changing consumer shopping habits are starting to show up in northwest Arkansas commercial real estate trends, according to the latest Arvest Bank Skyline Report on real estate.

The report, released Wednesday, details occupancy rates for commercial and multifamily real estate in Benton and Washington counties during the last six months of 2016.

The report shows more than 1 million SF of commercial space  — a combination of new and existing space — were absorbed during the second half of last year. The vacancy rate for all commercial space fell from 12.7 percent in the first half of 2016 to 11.7 percent in the second half.

In all, commercial space in the two counties saw a net positive absorption of 463,941 SF, up from 11,847 SF in the first half of 2016, the report said.

More: Download the report’s commercial highlights.

The report also noted changes in the retail and warehouse markets. The report said retail saw an increase in vacancy rates to 9.4 percent, up from from 9.2 percent in the first half of 2016. Warehouse properties, meanwhile, saw a significant decrease in vacancy rates year-over-year, falling to 8.1 percent in the second half of 2016 from 11.5 percent in the second half of 2015. 

Kathy Deck, the lead researcher for the Skyline Report and director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville, said the trend is likely a result of shoppers’ changing shopping preferences.

“As consumers have increasingly embraced online shopping, it stands to reason that these new shopping preferences will have an impact on different types of commercial real estate with the retail real estate market softening while the warehouse market begins to tighten,” she said. “I think that is what we are likely witnessing here in northwest Arkansas.”

The report showed strength in among office properties, which added 155,933 SF in the second half of 2016 and showed a net positive absorption of 115,463 SF.

From July 1 to Dec. 31, there were $137.2 million in commercial building permits issued in northwest Arkansas, down from the $206.5 million in the first half of the year and $112.8 million in the last half of 2015.

“Overall, the commercial real estate market can be described as both very active and well-balanced at this time,” Deck said.

Multifamily Vacancy Remains Low

The report said vacancy rates in multifamily real estate rose slightly from the first half of the year but remain at low levels. The overall vacancy rate was 3.2 percent, up from 2.4 percent in the first half of the year. The report tracks 336,159 multifamily units in 735 multifamily properties in the two counties.

“We are visiting with a large number of clients who have been very encouraged regarding the real estate development market here in northwest Arkansas,” Craig Rivaldo, president of Arvest Bank of Benton County, said about the report. “They have been seeing and hearing what this report indicates – that the market is well balanced, and there are plenty of good opportunities for intelligent commercial and multifamily projects now and in the future.”

More: Download the report’s multifamily highlights.

Springdale has the lowest vacancy rate in the region, 0.9 percent, followed by Bentonville at 1.3 percent, Siloam Springs at 1.8 percent, Rogers at 2.7 percent and Fayetteville at 4.7 percent. 

Fayetteville’s vacancy rate was up from 3.6 percent in the first half of 2016. Deck attributed the rise to a “substantial” number of “by-the-bed” rental units targeted to college students coming onto the market after the start of the fall school semester.

Increased demand put upward pressure on lease rates; the average monthly lease price for a multifamily property unit in northwest Arkansas rose to $627.04 from $608.88 in the first half of 2016.

“We are running out of adjectives to describe the multifamily market in northwest Arkansas,” Deck said. “Considering that what is generally considered the normal vacancy rate in multifamily properties is 5 percent, for the overall rate in northwest Arkansas to be in the 3 percent range and to have stayed under 4 percent since the second half of 2014 is remarkable. 

“With so many new multifamily properties under construction or recently announced, we anticipate that we will likely be in the more normal range of 5 percent within 18 to 24 months,” she said. “And with so many of the newer properties having a more robust set of amenities, it won’t be surprising if we see higher average rates at that time, even with a higher overall vacancy rate.”

The Arvest Skyline Report is a biannual analysis of the commercial, single-family residential and multi-family residential property markets in the two counties counties. The report is sponsored by Arvest Bank and conducted by the Center for Business and Economic Research in the Sam M. Walton College of Business at the UA.

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