The prospects for stability and continued growth in Arkansas’ largest commercial real estate markets are good. In Northwest Arkansas, Steve Lane is optimistic. After all, what’s not to like?
Lane, managing director of the Northwest Arkansas office of Colliers Arkansas, can see what anyone else sees who visits the region or drives through Washington and Benton counties on Interstate 49 — plenty of burgeoning growth and development still, a pent-up economy ready to burst out of the pandemic bubble.
Walmart’s new Google-like corporate campus emerging out of Bentonville’s limestone bed, signs of further retail, office and multifamily development seemingly around every corner…
In many ways, despite the pandemic, Northwest Arkansas remains, borrowing a line from Seinfeld’s Frank Costanza, “the place to be.”
“I’m very bullish on Northwest Arkansas,” Lane said. “The key is job creation, and we appear to be on a really good track.”
Of course, as one of the nation’s fastest growing metros, NWA has been on a good track for a while now. The economic think tank Heartland Forward of Bentonville recently studied the nation’s 375 metropolitan areas and ranked them using a variety of metrics including job growth, personal income level and GDP growth.
The metro placed third among medium-sized metros and 21st overall. The report noted the region’s transformation over the past 30 years as “astonishing” and said it was on a path “similar to what Austin and Nashville established 20 years ago.”
Developers on the ground have cited the area’s potential to become the next Austin, Lane included. Despite a pandemic hiccup, in which the rate of overall commercial growth was slowed, the regional outlook remains strong, according to a CoStar report commissioned by Colliers.
Increased demand for office space remains fueled by growth at Walmart and fellow Fortune 500s Tyson Foods and J.B. Hunt, not to mention Walmart’s bevy of vendors with increasingly large local footprints. Office inventory in NWA has expanded by 12 percent since 2015.
The Walmart/Walton family commitment to making NWA an attractive place to live and work is the key, Lane said.
“The area has always revolved around Walmart to a large degree, and as long as Walmart moves forward, Northwest Arkansas will continue to move forward.”
After a strong 2019 that saw a net absorption of 604,000 square feet in the NWA office market, 2020 provided a hiccup. But the region still experienced a positive net absorption of 289,000 square feet last year.
And the immediate market outlook calls for a return to pre-pandemic numbers, led by continued growth in downtown Bentonville and west Rogers, where Colliers is developing a high-end, mixed-use space that will accommodate retail, office and possibly residential. The Plaza at Pinnacle Hills will sit adjacent to Pinnacle Hills Country Club with access of Pinnacle Hills Parkway and Northgate Road.
“We are working with retailers and office tenants currently and are seeing a strong demand,” Lane said. “The concept is more of a downtown feel, walkable and accessible lifestyle-oriented alternative to the more corporate, high rise projects currently offered in the Pinnacle area.”
Outlook strong in Central Arkansas
The industrial and multifamily sectors in Central Arkansas are “on fire,” according to Isaac Smith, president of Colliers Arkansas in Little Rock.
“They were strong through COVID-19 and continue to be strong in 2021,” he said. “And the office market is pretty vibrant, especially in west Little Rock and Riverdale.”
In fact, Little Rock’s office market is bucking national trends, according to Colliers’ quarterly report for the first quarter of 2021. The overall office vacancy rate in the region decreased from 18.1 percent in the fourth quarter of 2020 to 15.2 percent with the average rental rate holding at $15.13 per square foot.
West Little Rock’s office vacancy rate for the first quarter was 11 percent with an average rental rate of $19.83 per square foot, while the downtown vacancy rate was 15.6 percent with an average rental rate of $16.12/SF. The lowest vacancy rate was found in southwest Little Rock (4.2) and the highest in North Little Rock (22.9). Saline County was home to the market’s highest office rental rate at $21/SF, and Maumelle claimed the lowest at $11.10/SF.
Smith said the decreased vacancy rate in the overall market is good news considering last year’s pandemic-fueled mass exodus of office workers to quarantine and remote work. The Colliers report also noted fewer lease renewals of five years or more with shorter term renewals of one to three years becoming more common.
Led by Amazon’s continued commitment to Central Arkansas that ultimately will result in five distribution facilities in the region, Little Rock continued to benefit from the national e-commerce trend that started pre-COVID but was accelerated in 2020. Industrial vacancy rates in the market continued to decline in the first quarter. Rental rates continued to slowly climb, stronger lease terms were seen, and fewer second-generation spaces were available, according to the Colliers report.
Retail was hit hardest by COVID, and the sectors in Central Arkansas that continue to see low vacancy rates despite the pandemic are medical/pharmacy, banking, grocery and auto service. But gradual lease-rate growth across the board is expected throughout 2021.
Newmark Moses Tucker Partners (NMTP) of Little Rock, in partnership with Premier Gastroenterology Associates, developed the new $35 million Premier Medical Plaza, opened in late 2019. The project is being counted on to help revitalize its corner of west Little Rock, the stretch of Rodney Parham Road west of Interstate 430 now dubbed “West Village.”
Padgett Mangan, commercial associate with NMTP, said the medical sector should continue to generate strong activity in 2021.
“People will reconnect with their doctor and dentist and refocus on their health, creating lots of opportunities for health care providers,” he said. “In particular, expect mental health, depression and dependency treatment centers to expand their footprint across Central Arkansas and occupy more commercial real estate space than we’ve seen before.”
With construction costs still on the rise and a seller’s market settled in for residential, the multifamily sector should continue flourishing in Little Rock and elsewhere, Colliers reported. According to CoStar, the Little Rock metro experienced more than $340 million in apartment sales volume in 2020, the second highest of the decade behind 2019.
More than 1,500 units were delivered to the market in 2020 and another 500 are planned for this year. Multifamily vacancy rates for the first quarter of the year were 7 percent.
Despite issues with materials for builders in both the residential and commercial markets, Smith is big on Little Rock. Industrial is surging while the office market is holding steady, vacancy rates have held steady or decreased in all submarkets and new development is strong. Just look at Little Rock’s new Costco, the first for Arkansas, which emerged from the pandemic dust and is set to open next month on Chenal Parkway.
“There has also been continual new overall development in Little Rock,” he said. “The demand is strong for industrial, multifamily, banking and senior living projects. But material pricing has gone up and has caused either delays or developers to switch materials to meet deadlines. We’re hoping the material prices level out before the end of the year.”