Apr 5, 2023 - Real Estate

NWA hits record low commercial vacancy rate

Data: Skyline Report; Chart: Axios Visuals

Commercial real estate in Northwest Arkansas is the tightest it's been since at least 2005, data from the biannual commercial Skyline Report released Tuesday shows.

The big picture: The area's overall commercial vacancy rate dropped to 5.6% as of Jan. 1, down from 5.8% in June 2022 and 8.3% a year earlier.

  • The rate includes properties from class A office space to warehouses.
  • The data align with a recent survey from the Bureau of Labor Statistics that shows millions fewer Americans worked remotely last year.

Why it matters: Commercial property occupancy is one 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 and affordable space.

By the numbers: More commercial space was leased than was added during the second half of 2022 — nearly 64,000 square feet. Office, medical office and office/retail property drove leasing activity in the region, per the report.

  • Available medical office space shrank to 5.1% vacancy at the end of 2022 from 6.4% at the end of 2021.
  • Only 8.4% of office space was vacant in NWA at the end of 2022, down from 10% a year earlier.
  • The office/retail submarket performed well, tightening to a 5% vacancy rate, down from 8.7% at the end of 2021.
  • Warehouse space, which had a vacancy rate under 1% in mid-2022, rose to 1.6% at the end of the year.

Between the lines: Much warehouse square footage is being used for e-commerce and storage for ongoing work at the Walmart headquarters under construction in Bentonville.

Zoom out: Nationally, office vacancies remain high, a remnant from the COVID-19 pandemic. There's some concern about a bust in the $6 trillion office market as the country teeters on bank crisis, Axios' Matt Phillip writes.

What they're saying: Northwest Arkansas' "commercial market never really took any long-term hits from the pandemic, which is something almost no other market in the U.S. can say," Mervin Jebaraj, director of the University of Arkansas' Center for Business and Economic Research, said in a news release.

  • He called NWA's market "healthy."

The bottom line: Building permits — an indicator of commercial space being developed in the near future — valued at nearly $241 million were issued during the second half of 2022, the highest it's been since late 2005, according to the Skyline Report.

  • The value does not include permits for Walmart's headquarters because it skews the market.

Go deeper: The Skyline's residential report for the second half of 2022 was released in March.

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