Multifamily Vacancy Rates Rebound Slightly; Strong Absorption in Commercial
FAYETTEVILLE, Ark. (March 9, 2016) – Arvest Bank recently released its Skyline Reports on commercial and multifamily real estate in Northwest Arkansas for the last six months of 2015.
Vacancy rates in the second half of 2015 rose in Northwest Arkansas from previous record lows as new units were completed and entered the market, according to Kathy Deck, lead researcher for the Skyline Report and director of the Center for Business and Economic Research. Even with a slight increase however, vacancies were still lower than they were at the same time last year. Vacancy rates for Northwest Arkansas overall were 3.0 percent in the second half of 2015, down from the 3.7 percent reported in the same period of 2014 and up from the 2.3 percent reported in the first six months of 2015.
Springdale reported the lowest vacancy rate for multifamily real estate with 1.0 percent in the second half of 2015, up from 0.9 percent in the first half of 2015. Bentonville and Siloam Springs reported vacancy rates of 2.0 percent and 2.7 percent, respectively, while Fayetteville’s rate was 3.6 percent. Rogers reported the highest vacancy rate at 4.8 percent. At the end of the first half of 2015, Bentonville had a vacancy rate of 0.4 percent, Siloam Springs had a vacancy rate of 2.4 percent, Fayetteville had 3.6 percent and Rogers had 0.9 percent.
"Although the amount of construction in the multifamily sector is high, the extremely low vacancy rates seen throughout Northwest Arkansas are sending strong signals to developers that there is demand for additional apartments. The increase in average prices is partly due to two factors: that the new units are on the higher end of the scale and that the complexes are raising leases as they have tight vacancy rates," Deck said. "Continued strong job growth indicates further population increases in Northwest Arkansas and more multifamily units are needed for a segment of that workforce."
In Bentonville, more than 570 new rental units have been announced or are under construction. In Fayetteville, more than 4,400 new rental units have been announced.
Increased demand has had an influence on the cost of rental space. The average monthly lease price for a multifamily property unit in Northwest Arkansas increased to $601.43 in the second half of 2015 from $581.72 in the first half of 2015. The average monthly lease rate per square foot was $0.71, up two cents from the $0.69 reported in June 2015.
The second half of 2015 saw robust new construction in the commercial real estate market in Benton and Washington counties, but the absorption rate was even stronger, Deck said. There were 836,033 square feet of commercial space that became occupied, while just 550,331 square feet of new space was added to the market in the last six months of 2015.
Commercial construction will continue as $112.8 million of commercial building permits were issued between July 1 and December 31, 2015. In comparison, there were $153.4 million in permits were issued in the second half of 2014 and $75.2 million issued in the first half of 2015.
The overall vacancy rate for commercial real estate in Northwest Arkansas was 12.4 percent, up from the 12.0 percent reported in the first half of 2015.
The largest gain in absorption was in the warehouse submarket with 131,082 square feet. The retail/warehouse submarket had positive net absorption of 41,411 square feet and the office/warehouse submarket had positive net absorption of 24,856 square feet in the Northwest Arkansas market. The retail submarket had positive net absorption of 23,257 square feet with 82,715 new square footage added and 105,972 square feet absorbed. The office/retail submarket and the office submarket both showed negative net absorption of 44,692 square feet and 38,992 square feet, respectively, in the second half of 2015.
"The commercial real estate market is beginning to reflect the overall optimism we have been seeing in the economy in Northwest Arkansas," said Tammy Engle, senior vice president and loan manager with Arvest Bank in Siloam Springs. "At the same time, we are pleased to see that optimism tempered by careful consideration of the needs of the market. Everyone is letting the experience of the last 10 years wisely govern their decision-making processes."
The Arvest Skyline Report is a biannual analysis of the latest commercial, single-family residential and multifamily residential property markets in Benton and Washington 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 University of Arkansas (CBER).
In 2004, Arvest Bank entered into a contract with CBER to collect information about the local real estate markets. CBER researchers aggregated and analyzed data from local governments, property managers, visual inspections and the business media to provide a complete picture of the status of property markets in the two counties.
The Center for Business and Economic Research at the Sam M. Walton College of Business provides excellence in applied economic and business research to federal, state and local government, as well as to businesses currently operating or those that desire to operate in the state of Arkansas. The center further works to improve the economic opportunities of all Arkansans by conducting policy research in the public interest.