LITTLE ROCK — The average vacancy rate for multifamily properties in Northwest Arkansas is low, but builders in Fayetteville are being cautioned that demand likely won’t be enough to fill thousands of apartments being built in the city.
While the multifamily sector has exceptional growth potential in Benton and Washington counties, some developers are desperate for opportunities, said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville. The center is part of the Sam M. Walton School of Business.
Adding to the problem, Deck said, is that developers are all piling into the market at the same time and in Fayetteville.
Deck is the lead researcher of the Skyline Report, which released Wednesday its biannual analysis of the multifamily sector in Benton and Washington counties. The report, sponsored by Fayetteville-based Arvest bank, is compiled by the university center.
The report indicated the vacancy rates for multifamily properties in Benton and Washington counties dropped to 5.1 percent overall for the first half 2012, the lowest rate since 2005, and down a full percentage point from the end of 2011.
Fayetteville was the only city in the report to experience an increase in its vacancy rate. It went to 5.6 percent for the first half of 2012, compared with 5.1 percent for the last two quarters of 2011.
Fayetteville, with the university, has the most multifamily properties in the two counties with 296, for a total 5.7 million square feet. The two counties have nearly 18.8 million square feet in 756 multifamily properties.
The increased vacancy rate, combined with an expected 3,000 new rental units projected for the city, is a cause of concern for Deck. There are currently 13,335 units in Fayetteville, according to the report.
“Given the history of enrollment growth, we are not going to see enough student population growth to fill all these apartments together with the existing stock of units,” she said in the report.
Earlier this month, the university said it has 24,537 students, a 5.8 percent increase over the total in fall 2011.
The Vue apartment complex in Fayetteville, designed to accommodate 656 beds, is being built by Houston-based University Student Living and ParkGreen Properties. The complex is expected to open in September of 2013, according to the company website.
And The Grove, with 632 beds in south Fayetteville, was built by North Carolina-based Campus Crest Communities and is already reserving rooms for the spring semester, according to its website.
Several other student-focused developments are being planned or under way.
Deck said many of the new apartment units come with amenities such as full-size pools, clubhouses and Wi-Fi that are attractive to students. She said these units will put price pressures on the market from top to bottom, with most of the squeeze being felt in the middle.
Apartment buildings that offer lower rent often have completed their mortgage payments and produce good cash flow for owners, Deck said. But apartments under construction will likely compete with other relatively new complexes that are not paid off, forcing the owners of those units to reduce rent or upgrade to compete.
Among the region’s other cities, the report says, Rogers had the lowest multifamily vacancy rate for the first half of 2012 while Springdale, Siloam Springs, and Bentonville vacancy rates dropped significantly for the period when compared with the last half of 2011.
Rogers posted a vacancy rate of 2.5 percent for the period, down from 5.4 percent. Springdale dropped from 10 percent to 7.5 percent; Siloam Springs went from 8 percent to 5.9 percent; and Bentonville went from 3.8 percent to 2.6 percent.
The average monthly lease price for a multifamily unit in Northwest Arkansas increased a little less than $4, to $538.21, in mid-2012, from $534.24 at the end of 2011. However, the median monthly lease prices remained at $495.
Business, Pages 25 on 09/27/2012