Arvest Newsroom

Skyline Report: Commercial Real Estate Market Continues to Show Strength

FAYETTEVILLE, Ark. (March 27, 2018) – Arvest Bank today released Skyline Reports on commercial and multifamily real estate in Northwest Arkansas for the second half of 2017.

During the first half of 2017, the overall vacancy rate for commercial real estate was 10 percent, the lowest overall rate since the Skyline Report began in 2004. This continued in the second half of 2017 as the overall rate declined to 9.7 percent. This historically low vacancy rate was achieved despite adding 718,282 square feet of new commercial space. Overall the market absorbed 990,860 square feet of commercial space which, when factoring in the new space added, resulted in positive net absorption of 272,578 square feet.

The warehouse submarket added 599,600 new square feet and absorbed 713,092, leading to positive net absorption of 113,492 square feet and a decline in the overall vacancy rate from 7.6 percent in the first half of 2017 to 5.8 percent in the second half. Looking at the warehouse submarket on a longer timeline, the amount of available square footage has declined from 1,206,283 in the second half of 2013 to 534,307 in the second half of 2017.

The office submarket also demonstrated continued strength as the overall vacancy rate for office space fell from 10.4 percent in the first half of 2017 to 9.1 percent in the second half. Looking again at a longer timeline, the amount of office space available for rent has fallen from 1,535,575 square feet in the second half of 2013 to 1,069,781 in the second half of 2017.

Mervin Jebaraj, director of the Center for Business and Economic Research (CBER) at the Sam M. Walton School of Business, said the office space market in Northwest Arkansas is doing well, as evidenced by the strong showing of Class B and Class C space being absorbed.

“Seeing strength in Class B office space rentals is a good sign for the overall economy as it indicates many newer companies and start-ups are stepping into Class B space as their counterparts from a few years ago are moving up and into Class A space,” Jebaraj said. “I believe the entrepreneurial programs in the region are going to need the vibrant Class B office market.”

The retail submarket saw a slight increase in vacancy rates – up to 8.9 percent in the second half of 2017 from 8.7 percent during the first half of the year. Since the second half of 2013, the amount of available retail space has increased from 724,361 square feet to 871,707 in the second half of 2017. Jebaraj believes this trend is likely to accelerate in the near-term as shopping preferences continue to impact the traditional retail market.

“While the vacancy rate for retail space has increased, it is still relatively stable, as many service industry companies like restaurants have taken over what was previously retailer selling goods. As more large-scale sellers of goods like Toys R Us® continue to close stores, we will likely see vacancies increase since these larger, big box spaces are harder to repurpose for service industries,” Jebaraj said.

During the second half of 2017 there was an increase in commercial building permits to $204.1 million compared to $116.8 million in the first half of the year.

Vacancy rates in multifamily real estate edged up to 4.5 percent in the second half of the year from 4.2 percent in the first half. Jebaraj pointed out that this small increase was primarily the result of a few large properties coming online late in the year in Bentonville and Fayetteville.

“An overall vacancy rate under five percent is very healthy, and even with more than 8,000 new units under construction or announced, we believe that the multifamily market can absorb the new units being built or planned because of the population growth forecasts combined with low inventory of new homes and lots to build new homes. Moving forward, it would help the multifamily market to see an increase in lower-priced multifamily developments,” he said.

Ladd Lanier, senior vice president/commercial loan manager with Arvest Bank of Fayetteville said about the Skyline resuts, “This report reflects what we are hearing from our commercial and multifamily real estate development customers that the market is strong, well-balanced and full of opportunities for the right type of development. We are fortunate to be operating in an area of the state and country that continues to experience a robust local economy.”

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, (CBER) in the Sam. M. Walton College of Business at the University of Arkansas.

In 2004, Arvest Bank contracted 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 CBER 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.☐