Commercial Space Filling Up

University Report Shows Vacancy Rates Dropping

Construction crews work Friday on Pinnacle Heights Office 1 at J. B. Hunt Drive and West Northgate Road in Rogers. The office building, one of two that will be built in the area, is set open later this year.
Construction crews work Friday on Pinnacle Heights Office 1 at J. B. Hunt Drive and West Northgate Road in Rogers. The office building, one of two that will be built in the area, is set open later this year.

Northwest Arkansas’ growing economy is helping fill the area’s vacant commercial space and prompting new construction.

The area’s employment grew 3 percent, adding 9,000 new jobs, between 2011 and 2012, and the number of businesses grew slightly after dropping in 2009 and 2010, according to the 2013 State of Northwest Arkansas Region Report.

Then the area’s commercial vacancy rate dropped to 14.6 percent in the first half of this year compared to 15.9 percent in the last half of 2012, according to the Skyline Report.

“When you have population growth like we have, you would hope to have more office space to put workers in,” said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas. “You also start to see retail growth again. It is really indicative of economic growth.”

The State of Northwest Arkansas Region Report was released last week and looked at the metropolitan statistical area that includes Washington, Benton and Madison counties and McDonald County in Missouri. The the Skyline Report was released earlier this month and is a biannual report of the commercial sector in Benton and Washington counties. The Center for Business and Economic Research produced both studies.

The two-county area had 35.8 million square feet of commercial space with 5.2 million square feet available. The Skyline Report does not include owner-occupied buildings such as Walmart’s Bentonville home office or Walmart stores. The report only includes leased space.

Office space account for the largest amount of the area’s total commercial space. The 9.8 million square feet account for 27 percent of total space. The office space vacancy rate was 15.3 percent, with 1.5 million available square feet.

By The Numbers

Commercial Market Trends

The Skyline Report released by the University of Arkansas Center for Business and Economic Research showed how much commercial space was vacant in the first six months of 2013.

Office Available Square Footage #Office Vacancy Rate #Retail Available Square Footage #Retail Vacancy Rate

Bella Vista #3,300 #16 percent #0 #0 percent

Bentonville #5500,711 #16.5 percent #55,088 #11.5 percent

Fayetteville #368,832 #13.1 percent *326,287 #9.9 percent

Lowell #33,638 #11 percent #18,554 #14.8 percent

Rogers #428,137 #17.7 percent #237,679 #9.1 percent

Siloam Springs #3,000 #2.9 percent 59,564 #16.7 percent

Springdale 116,210 #14.1 percent #141,369 #13.8 percent

Northwest Arkansas #1.5 million #15.3 percent #838,541 #10.6 percent

Source: Center For Business And Economic Research

Bentonville had the most available square feet of office space with 550,711, but Rogers claims the highest vacancy rate at 17.7 percent.

Alan Cole, a leasing agent with Colliers International, a commercial real estate company, said Bentonville has benefited from commercial infill downtown. He said infill is often a harder way to grow commercial developments.

“It’s a lot easier to buy undeveloped farmland than purchase several houses to tear down in a downtown area,” he said.

Despite the availability of space in Rogers, new office buildings are being built.

“Tenants now are interested in having better properties, better amenities in better locations. These are things they may not have needed, or wanted, in the past,” Cole said.

Hunt Ventures is planning a nine-story, 211,738-square-foot office building along Pinnacle Hills Parkway near the corner of J.B. Hunt Drive called. The building will be named Pinnacle Heights Office No. 2.

Pinnacle Heights Office No. 1 is across the street and the 60,000-square-foot building will open later this year.

These offices fall into what is considered Class A properties. They account for less than a quarter of total office space and have a 13.6 percent vacancy rate.

Class B offices are often single story buildings that that offer few or no amenities. Almost half of the area’s office space falls into this category and it has a vacancy rate of 16.7 percent.

Cole points to growth in Walmart’s vendor community as a catalyst for the new spaces.

“Ten years ago you saw a lot of Walmart vendors in smaller offices. Now those accounts are so important to their business they are adding workers and needing more space,” he said.

When businesses move up in office space, it opens opportunities for new businesses to move in, he said.

The area near Pinnacle Hills Promenade in Rogers has helped bolster the city’s retail presence. Only 9.1 percent of the city’s 2.6 million square feet of retail space is vacant. There is 7.9 million square feet of retail space in Benton and Washington counties with 10.6 percent vacant.

“There is still a lot of room for growth around Pinnacle Hills and that will continue to be where a lot of the growth is going to be,” Cole said.

He anticipates developments will continue to spread out from the Promenade, especially down the mostly undeveloped, 26th Street that connects the area to the city’s Pleasant Grove shopping area.

Fayetteville has the most retail space in the area with 3.2 million square feet and a vacancy rate of 9.9 percent.

Cole said a lot of Fayetteville’s retail growth will sprout off Wedington Drive as the city’s west side grows.

“Commercial development follows residential growth,” he said.

Fayetteville’s business corridor along Martin Luther King Jr. Boulevard is also seeing activity, he said.

“A lot of older businesses closed down and new businesses move in. It creates a fresh mix,” Cole said.

Deck called Washington County’s commercial market more mature than Benton County’s.

“The population is still growing, just not as quickly,” she said. “You just are not seeing as much building permit activity in Washington County.”

The state of the region report shows the number of building permits issued across the region grew 59.5 percent between 2011 and 2012, after it dropped 43 percent between 2007 and 2009.

Springdale is an area on the cusp of seeing a lot of development, Cole said.

“The city’s administration deserves credit because it is developing infrastructure that will spur eventual growth,” he said. “Springdale will be a huge beneficiary because they prepared for it.”

The city’s voters approved a $71 million bond issue that allows for $45 million in street improvements, including construction of the Don Tyson Parkway interchange on Interstate 540, widening Elm Springs Road and extending 56th Street from Don Tyson Parkway to Elm Springs Road.

“The old economic development saying is development follows infrastructure. As the infrastructure continues to be build out we will see more and more business announcements,”said Bill Rogers, vice president of communications for the Springdale Chamber of Commerce.

He hopes a new Walmart Supercenter on Elm Springs Road will get the ball rolling.

“When you have a Walmart Supercenter that is under construction, it always brings other development with them from banks to restaurants,” Cole said. “That just may be the catalyst that kicks off development there.”

The 180,000-square-foot store is set to open in the fall of 2014. Development plans show nine additional lots to be used by other businesses.

“The first domino is usually the hardest one to push over. Once you push the first one, the rest fall quickly and much easier,” Rogers said.

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