Commercial vacancies in NW counties fall to 5.8%

So much commercial real estate in Benton and Washington counties was snapped up in the first half of this year that the overall vacancy rate plunged to 5.8% from 8.9% in last year’s first half, according to the Skyline Report released Tuesday.

The rate fell despite an additional 521,750 square feet of leasable commercial space coming on the market. Nearly 1.76 million square feet was leased in the first six months of 2022.

Last year’s first half saw about 1.15 million square feet leased.

Mervin Jebaraj, director of the Center for Business and Economic Research at the University of Arkansas and the report’s lead researcher, said the data show the region’s strength and resilience coming out of the pandemic.

The report indicates that Northwest Arkansas companies in many business sectors are experiencing continued growth, Jebaraj said. With many employees returning to work in their offices, new office space is being absorbed as a result of that growth, he said.

The Skyline Report, released twice a year, covers the commercial and residential real estate markets in the two-county area. The university’s Center for Business and Economic Research compiles the data for the report, which is sponsored by Arvest Bank.

“When you think back to the beginning of the pandemic and the uncertainties it created for commercial real estate, it is good to see the market in Northwest Arkansas remain strong,” said Chris Thornton, executive vice president and commercial loan manager with Arvest Bank in Springdale.

In the warehouse market, Tuesday’s report showed a vacancy rate of less than 1%, down from 6.6% last year. That means “there is virtually no leasable warehouse space in the region,” Jebaraj said.

That figure supports the idea that e-commerce growth continues to require more warehouse space, Jebaraj said.

The region’s retail vacancy fell below 10% for the first time in several years, dropping from 10.8% to 7.9%.

In the office sector, vacancy dipped to 9.1% from the previous rate of 11.2%.

Medical office space was the only sector that saw a vacancy rate increase, growing to 6.6% in 2022’s first half from 4.3% in the first six months of 2021.

The value of commercial building permits issued in the two counties totaled $293.7 million, down from $397.9 million in the second half of 2021 and from $647.1 million in the last year’s first half.

Most of the permits were issued in Bentonville, which accounted for 64.5% of the total. Springdale issued 18%; Rogers had 9.9%; and Fayetteville issued 3.7%.

Nationwide, pressure from rising inflation and geopolitical events has slowed the growth of commercial real estate, according to an October report from the National Association of Realtors.

Retail store space in particular has suffered as consumers cut back on spending and net absorption dropped, the association said.

Industrial properties have been the leading sector this year, and that shows no sign of stopping, the association said. But even as workers return to the office, the embrace of hybrid work has decreased the demand for office space after four quarters of positive net absorption.