Warehouses boom, offices lag in Northwest Arkansas

Despite the pandemic, NWA's commercial real estate market is healthy. That's thanks to the demand for warehouse space for all the stuff we're buying online.

Driving the news: The vacancy rate for all commercial real estate fell to 8.9% for the first half of 2021, according to the biannual commercial Skyline Report released yesterday. Compare that to 10.8% at the end of 2020.

• This is the first time the rate fell below 10% since the second half of 2017.

Why it matters: Commercial real estate occupancy is an important indicator of how an area's economy is performing.

Zoom in: Warehouse leasing is leading the way. Almost 62% of nearly 1 million occupied square footage from Jan. 1 to June 30 was warehouse space.

• The warehouse vacancy rate fell to 6.6% from 9.3% at the end of 2020.

Yes, but: Office space struggled as employees continue to work from home. NWA added more than 165,000 square feet in office space, while only 1,052 square feet were occupied — about 0.6%.

• As a result, the office vacancy rate increased to 11.2%, compared to 10.8% in the second half of 2020.

Context: The Center for Business and Economic Research at the University of Arkansas provides the real estate analysis in Benton and Washington counties.

What they're saying: The jump in warehouse space leasing is reflective of the national trend in commercial real estate, Alan Cole, principal broker with Colliers' NWA office, told Axios. As more people shop online, businesses need warehouse space to help fulfill orders.

• Despite lower numbers in office leasing, there is a lot of activity in the most desirable office space (Class A) as tenants look to right-size in the new normal and plan for the next year, Cole said.

Of note: Commercial building permits — a rough estimate of the construction value of projects — rocketed to more than $647 million in the first half of 2021. $435 million of that value is related to Walmart's new headquarters.

• About $212 million were for other commercial projects in NWA. That's an increase from $189 million in the second half of 2020.