Oct 5, 2022 - Real Estate

Northwest Arkansas is low on commercial space

Source: Skyline Report; Chart: Axios Visuals
Source: Skyline Report; Chart: Axios Visuals

Less than 1% of warehouse space in NWA is available for lease — meaning there is functionally zero square footage to rent.

  • The vacancy rate has fallen sharply from the 5.3% available at the beginning of the year.

Much of the square footage for storage is being consumed by e-commerce and subcontractors staging supplies to build Walmart's new home office.

The big picture: The area's overall commercial real estate vacancy rate — from warehouse to class A office space — dropped to 5.8% as of June 30, down from 8.3% at the beginning of the year. It's the tightest the region's market has been since at least 2005.

  • Commercial real estate occupancy is an indicator of an area's economic performance. Vacancy rates in the single digits are generally good for developers, but can make it difficult for tenants to find desirable, affordable space.

Driving the news: Data comes from the biannual commercial Skyline Report out Tuesday. The residential report for the first half of 2022 was released in September.

Context: The report divides commercial real estate into seven submarkets: office, medical office, office/retail, office/warehouse, retail, retail/warehouse and warehouse.

Yes, and: Vacancy rates in six of the submarkets declined between June 30, 2021 and June 30, 2022.

  • Only medical office space increased from 4.3% in the first half of 2021 to 6.6% in the first half of 2022.
  • Office space had the highest rate as of June 30, at 9.1%. The office/retail submarket was the second highest at 8.2% vacant.

What they're saying: "[It] looks like even though people might be working remotely some days of the week, office space demand hasn't declined any," Mervin Jebaraj, director of the Center for Business and Economic Research at the University of Arkansas, told Axios.

  • "There's still a lot of demand for warehouse space. That's not necessarily going to change in the near future because we've seen quite a bit of e-commerce growth. People are still worried about the supply chain, so they are … holding more warehouse space to hold inventory," he said.

The bottom line: "I see us in a market that all of the vacancy rates tell us we should build, but that has to be weighed against the pressure we have of interest rates and construction costs, and that is a nasty looking and tasting soup," Jeff Pederson, a senior vice president with Lindsey & Associates, told Axios.

  • He expects developers will slow down on speculative commercial construction in the near future.
  • In the last month, Pederson has seen some projects with good potential be put on hold.

Yes, but: "This doesn't mean that it's over," he said. "This is a correction. It's doing exactly what it's supposed to do."


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