Is there a reckoning coming for office real estate in Arkansas?
That’s a question we’ve been kicking around since the darkest days of COVID-19, which prompted a sea change in people’s habits, from how they shop, travel and eat out to where they work.
It’s also a question surfacing over and over again in the national media, in places like the Wall Street Journal, with its eye on large coastal markets like San Francisco and New York.
And it’s a question that loomed over last week’s Arkansas Business cover story on remote work by Senior Editor George Waldon. That story included the latest numbers on the share of people working remotely in Arkansas and across the country as reported by the U.S. Census Bureau. While in many places that share declined from 2021 to 2022, it remains far and away higher than in pre-pandemic 2019.
“A significant amount of remote work is still happening since the pandemic,” Waldon reported, “and employers and commercial property owners are working to find the new normal for office space.”
What is the new normal? During a panel discussion I moderated last week for the Rotary Club of Little Rock on metro Little Rock commercial real estate, Hank Kelley, CEO of Kelley Commercial Partners, noted that more people are returning to the office, but in a different way than before COVID:
“Tuesday, Wednesday, Thursday is the new work week. Part of it Monday, part of it Friday,” he said. “So the good news for office landlords is, if you want to have an office space that’s Tuesday, Wednesday and Thursday, you need about the same space that you would have otherwise.”
Kelley’s larger point, though, had to do with the first question. With pre-COVID lease agreements coming due over the next year and a half, what might the fallout be for office real estate in Arkansas?
Kelley said Arkansas, a third-tier market with little of the speculative building that drives places like Boston or San Francisco, is insulated from the worst of the real estate bubbles. Little Rock isn’t overbuilt, like some markets are, and its properties are easily accessible, thanks to a freeway system that allows workers to drive 40 or 50 miles into downtown or west Little Rock “a lot easier than you can in one of the major markets.” That removes the drama, he said, of what happens in larger markets, “where people only want to lease in the suburban areas.”
So while there could be some retraction among landlords and tenants, “It’s not nearly as bad as the media plays it,” Kelley said, and certainly not as bad in Arkansas.