Real Estate Surplus Plagues Commercial Sector
Last updated Tuesday, August 12, 2008 3:52 PM CDT in Business
By Kim Souza
THE MORNING NEWS
Vacancy rates remain high in the region's commercial and multifamily sectors, despite the slowest building activity in more than four years, according to a report released Tuesday.
The Skyline report is a quarterly economic analysis compiled by the Center for Economic Research and Development at the University of Arkansas on behalf of Arvest Bank.
The second quarter report contained mixed results among the region's commercial market segments.
Experts applauded developers for restraining their commercial building as permit values in the quarter fell 79 percent from the year-ago period. The $13 million recorded was the lowest level reported since 2004, the report said.
"The seeds for the recovery of the local commercial real estate market are being planted," said Kathy Deck, director for the center and lead researcher for the report.
Deck said the slower building trend looks to continue into next year, and the muted additional supply will give the market the ability to absorb some of the finished empty space. Office space has been the region's most overbuilt submarket in recent quarters. The recent report indicated a positive absorption of 21,854 square feet during the quarter. On June 1, the region still had 1.7 million square feet of office space available for lease.
Bentonville holds a lion's share of the empty office space with more than 780,000 square feet, nearly half of the region's total. Bentonville absorbed about 42,000 square feet of office space in the year-over-year period.
"We have seen a distinct slowdown in the last few months, losing a few tenants who worked in both trucking and construction," said Laurie Bright, comptroller of the McKissic Creek Center, an office park located on the Bentonville-Bella Vista line.
McKissic Creek caters to smaller businesses and Wal-Mart vendors looking to start up or downsize operations. She said despite tough competition, the complex is about 70 percent leased and offers flexible month-to-month contracts with rents ranging from $195 to $595 per month. She said contracts include paid utilities and cleaning in most cases, and the smaller units are fully furnished.
One of the region's most resilient markets in past quarters -- retail -- showed signs of weakening. In the quarter, the retail submarket added 15,076 square feet of space and 25,367 square feet became vacant, sending vacancy rates up to 14.3 percent, their highest level in more than a year.
An onslaught of warehouse construction in Springdale in recent months brought this segment's vacancy rates up to 27.9 percent, compared to 17.7 percent in the previous quarter.
Multifamily vacancy rates were 12.8 percent in the second quarter, up from 9.9 percent a year earlier, the report noted.
A macro-economic view indicates multifamily demand will likely strengthen in the coming months as lack of single family home sales leave more families living in apartments.
"The multifamily market is improving particularly in Bentonville, which had the highest vacancy rates in the region, while Fayetteville remains flat at about 10 percent," said Jeff Collins, market expert with Street Smart Data Services.
Collins, owner of apartments in both Fayetteville and Bentonville, said the downside is that the sluggish market provides no pricing power for owners at this time.
Often consumers who live in apartments are among the most vulnerable to food and price inflation, Collins said. In recent months they have seen their disposable income shrink amid rising gas and grocery prices, and raising rents is just not feasible, he added.
Collins said reported rents were hard to measure as high vacancies have prompted "special deals" by owners.
In the region, apartment owners are advertising reduced rent for new tenants, move-in specials such as $100 deposits, and one month's free rent.
Lindsey Management of Fayetteville, the largest player in the local multifamily market, recently advertised $100 gift cards to new occupants who signed 12-month leases at its Northwest Arkansas apartment communities.
Fast Facts
Multifamily Rental Review
City Vacancy Rate Average Rent/ sq. ft.
Siloam Springs 9.7% $0.55
Springdale 13.9% $0.57
Rogers 14.5% $0.60
Fayetteville 10.5% $0.67
Bentonville 17.4% $0.68
Source: Skyline report for the second quarter ending June 1, 2008.
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