NWA commercial real estate vacancy hits an 11-year low
Add Axios as your preferred source to
see more of our stories on Google.
An office building project in downtown Bentonville. Photo: Worth Sparkman/Axios
Northwest Arkansas commercial real estate hit a new low — the lowest vacancy rate (8.3%) since at least 2005.
- The number comes from the commercial Skyline Report out Tuesday. The residential report came out in March.
Why it matters: Commercial real estate occupancy is an important indicator of how an area's economy is performing. Vacancy rates in the single digits are good for developers but can make it harder for tenants to find desirable, affordable spaces.
- There's no specific "healthy" number, although experts tell us that a range between 8% and 15% is generally good.
Driving the news: Warehouse space was the leasing leader in 2021, down to a 5.3% vacancy rate at the end of the year from 6.6% six months earlier. More than 445,000 square feet of warehouse space were added during those six months, but almost 580,000 square feet were leased.
- Mervin Jebaraj, director of the Center for Business and Economic Research at the U of A, said in a news release that the warehouse sector was benefiting from e-commerce growth.
- See: Amazon's lease of a 100,000-square-foot distribution center in Lowell last year.
Yes, but: David Erstine, vice president of CBRE in Fayetteville, told Axios the warehouse vacancy rate will get even tighter, and there are other factors driving demand:
- Companies that want proximity to Walmart continue to move here (electric vehicle maker Canoo leased 270,000 square feet in Bentonville recently).
- Subcontractors starting construction on Walmart's new home office in Bentonville need warehouse space to stage supplies, Erstine said.
- Likewise, contractors building residential properties that are in high demand are also using industrial space.
On a sadder note, Erstine said some of the businesses displaced by last week's tornado will put additional pressure on the warehouse market while cleanup and rebuilding take place.
Meanwhile: The office vacancy rate fell to 10% at the end of the year, down from 11.2% midway through 2021. Both Jebaraj and Erstine said demand in the office market was strong at the start of this year and likely will continue, assuming more people return to workplaces rather than working from home.
What they're saying: Erstine told us the office market isn't as dependent on Walmart vendors as it once was.
- As the market has matured in recent years, out-of-market professional services — like law offices, construction companies, civil engineering firms — have started opening offices in NWA to take advantage of our growth.
- And, Erstine said he's starting to see companies that were startups just a few years ago expand.
Of note: Commercial building permits, a rough estimate of the construction value of projects, were valued at nearly $380 million in the second half of 2021. $272 million of that was related to Walmart's home office project.
- The total value of commercial building permits issued in 2021 was $1.04 billion, nearly $725 million of which was tied to Walmart.