New Retail, Office, Industiral Building Under Construction

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Developers are turning dirt and building structures across Northwest Arkansas as commercial projects gain steam.

Builders pulled 35 percent more commercial building permits in Northwest Arkansas' four biggest towns in 2013 compared to 2012. There were 93 commercial permits in 2013 versus 69 a year earlier.

"I think we are poised for even more growth," said Jordan Ligon, Xceligent's regional director for Northwest Arkansas. "I think we are over the recession hump and in growth mode now." Xceligent is a commercial real estate information firm.

Projects under construction or in the planning stages range from convenience and drug stores to multistory office buildings and warehouse space.

The area experienced a building frenzy in the first half of the 2000s, before the country fell into a recession. Some of these buildings were never finished, while others never attracted tenants. It has taken years for much of this space to fill.

The recession ran from December 2007 to June 2009.

Vacancy rates began to drop in recent months as the space filled, said Tom Reed, a partner with Streetsmart Data Services.

"We had improvement in the commercial sector, specifically in leasing," he said. "That hasn't translated to sales like we would like to see, but that may be changing."

Growth is happening across all commercial sectors, but at a slower pace.

Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas, said banks want assurances that a building won't sit empty before loaning money. Most space built today is for a specific tenant or has a commitment from a long-term leasee.

There is little speculative construction underway, Deck said. Speculative projects are built without a specific buyers or tenants in mind. Recently announced retail and office projects have commitments for at least 80 percent of their space.

Even when space is available, it might not be right, Deck said. There is more than 1 million square feet of vacant office space in the area, but new office buildings are in the works. Tenants might think available space is not in the right location, doesn't offer the right amenities, is too close to a competitor or is not big enough, Deck said.

Some developers are seeing potential growth opportunities in industrial space in Bentonville and are building speculative sites. But even those speculative buildings have a use in mind: to serve Walmart suppliers.

Sustainable Growth

Area leaders applaud the slower, more targeted building, calling it a sustainable growth.

"This is the right pace," Rogers Mayor Greg Hines said at a recent retail development groundbreaking.

Hines said residential housing growth is running alongside the commercial growth, helping both sides. Building permits for single-family houses jumped 39 percent in Rogers between 2012 and 2013, according to city records. Housing permits were up 13 percent in all four of the area's largest town in the same time period.

Marshall Saviers, a partner with commercial real estate firm Sage Partners, is involved with an industrial project in Bentonville. He said the sustainable growth feels better than boom growth as developers look to fill holes in the commercial supply.

"The folks in the market are doing it smarter this time," he said. "I think we are definitely on an uptick."

Greg Fogle, president of Midwest Operations for Nabholz Construction Services, said his company is cautiously optimistic.

"You hear customers talk about plans they weren't talking about before," Fogle said.

He said growth is different now than during the prerecession boom times.

"The growth is slower. Other parts of the country are not having it as good as we are," he said.

Retail Space

The vacancy rate was 6 percent of almost 15 million square feet of retail space in Fayetteville, Springdale, Bentonville and Rogers in the the fourth quarter of 2013, according to a Market Trends report by Xceligent. The national vacancy average was 10.4 percent.

"Retail space in Northwest Arkansas has been tight," Ligon said. "Everything that gets built gets grabbed."

The east side of Rogers filled the most retail space last quarter, with its vacancy rate dropping from 10.02 percent to 7.49 percent. Rogers' west side had the area's highest lease rates and lowest vacancy rates, at $17 per square foot and 4.4 percent. The average lease rate for all areas of Rogers, Bentonville, Fayetteville and Springdale was $13.

Hines said growth across the city is important. The city is working on a downtown master plan. The mayor during his State of the City address in January that the work was an aggressive and comprehensive attempt to plan for a sustainable and vibrant downtown.

"You can't ignore the 800-pound gorilla that is Pinnacle Hills, but we need to make sure the whole town grows," he said.

Pinnacle Hills Promenade is an outdoor retail complex just off Interstate 540 five miles west of downtown Rogers. It has more than 100 retailers and restaurants. Brenda Majors, Pinnacle Hills Promenade marketing manager, said the center is nearly full and new retailers and restaurants will open later this year.

Retail growth is also happening across the interstate from the promenade. John George, a spokesman for Hunt Ventures, which owns a lot of property in the Pinnacle area, said a 10,000-square-foot retail building in Promenade Point will be completed in May. Pinnacle Heights at 4195 Pinnacle Hills Parkway has room for three restaurants and additional retail space.

Another retail center is being built down the road on the Pauline Whitaker Parkway. Alan Cole, a leasing agent with Colliers International, said he's working with a group out of Little Rock that purchased property on the southwest corner of the roundabout near the Walmart Neighborhood Market. Plans for the area include a retail shopping center. Cole said the 20,000-square-foot retail center will be done next summer.

Whisenvest Realty, a Little Rock-based real estate development firm, also intends to be part of the area's commercial growth. The company purchased 368 acres along I-540 in the Pleasant Crossing and Pinnacle Hills areas for $19 million in 2012. The company sold some land for a residential development.

Whisenvest announced late last month plans to build a new multitenant retail center at 2600 W. Pleasant Crossing Drive, in front of the Walmart Supercenter. The 27,000-square-foot center will have a gym, two restaurants, a nail salon and spa and a furniture center.

"This is the first of several upcoming projects for the Pleasant Crossing area, and we are thrilled to get this ball rolling on the next state of development for this area," said Burke Larkin, Whisenvest senior vice president.

Retail Concentration

New multitenant retail centers are also popping up in Bentonville. Troy Galloway, Bentonville director of community development, said commercial development is not back to prerecession levels, but is picking up.

"A lot of store fronts and office space that was empty are now filling up," he said. "A lot of investors and entrepreneurs are taking advantage of that momentum."

Cole said he is also working with a developer for a new retail center on Southwest Regional Airport Boulevard in Bentonville near a Walmart Neighborhood Market. The 15,000- to 18,000-square foot center is still in design stages and Cole said preleasing is going well.

"The market is growing, space is leasing and there is some activity," he said.

A 15,000-square foot retail and office space named The Center at Fountain Plaza, 500 S.E. Walton Blvd., is a Commercial Realty project scheduled to open this summer.

"We are seeing growth in areas near convenience retail spots, such as grocery stores, where people are making daily trips that are close to neighborhoods and close to traffic," Cole said. "You see a lot of these new projects being built by Walmart stores. Tenants want to be near established businesses."

Bentonville is working on a pair of economic development plans: North Walton Boulevard Corridor Enhancement Plan and the SE Downtown Area plan. Galloway said the plans may help redevelop former manufacturing facilities for Tyson and Kraft.

Springdale leaders hope their city's downtown redevelopment plan will spur activity in the town's center. They are also hoping a new I-540 interchange will be a catalyst.

Lance Eads, vice president of economic development director for the Springdale Chamber of Commerce, said when the Don Tyson Interchange is completed in August, it will open a new area for growth. A Casey's convenience store is already planned at the exit.

A new Walmart Supercenter is under construction a few exits to the north and will create more retail growth. The store is slated to open this fall.

Plans filed with Springdale's Planning Department call the area Hall Crossing and show the 70-acre development divided into 12 parcels to house additional businesses.

"I think activity begets more activity," Eads said.

Saviers called the Springdale and Fayetteville markets more mature.

"A lot of the work going on right now is in Bentonville and Rogers, but that doesn't mean Fayetteville and Springdale are doing poorly," he said.

Andrew Garner, Fayetteville Planning director, said much of the city's growth is happening west because is has open space. A 6,000-square-foot multitenant development is in the works on Wedington Drive next to Planet Fitness and the Neighborhood Market.

The center will hold Invision Eye Care, SuperCuts and Dickey's Barbecue Pit. Freddy's Frozen Custard & Steakburgers is also building in the area.

Down the road is a Walgreen's set to open soon.

"With the residential growth in the area they can support a mix of businesses," Garner said.

Office Space

New office and industrial buildings are growing at a slower, but more sustainable pace, Ligon said. He said office space in the area was overbuilt after Walmart suppliers began opening offices in the area.

"The market is now looking relatively healthy," Ligon said. "But it still comes down to location."

Xceligent reports a vacancy rate of 10 percent for just more than 10 million square feet of office space. The vacancy rate hits 13.7 percent when owner-occupied properties, accounting for more than 30,000 square feet, are excluded. The rate is still below the national average of 15.6 percent. Owner-occupied space includes headquarters for companies such as Walmart, Tyson and J.B. Hunt.

Bentonville had more than 45,000 square feet of office space fill up in the fourth quarter of 2013 while gaining just 5,000 square feet of new space.

"Tenants are interested in larger spaces right now, and there are very few of those spaces remaining in the market," Cole said. "That's why we are seeing new developments."

He said new office buildings are built near other high-end projects, amenities such as restaurants and banks, and housing.

Another project Cole is working on is a three-story, 90,000-square-foot office building Cole is working on is planned next the the Rogers Neighborhood Market and a new retail center on Pauline Whitaker Parkway. He said it should open in 18 months.

George said a two-story office building in Promenade Point near Embassy Suites in Rogers opened in November, and they are in the preleasing and planning stage of a nine-story building nearby.

Hunt Ventures is also building a 15,000-square-foot office building on the hillside by Home Depot just east of I-540.

Industrial Space

The area's nearly 28 million square feet of industrial space has a vacancy rate of 5.4 percent, according to Xceligent. The national vacancy rate is 9.2 percent.

Fayetteville has the area's most industrial space with 14.9 million square feet. Springdale has 9.6 million square feet and Rogers 8.3 million square feet.

Bentonville is hoping to catch up. The city has 4.5 million square feet of industrial space, but has a couple of speculative projects in the works.

Saviers said a 150,000-square-foot speculative industrial building will be built on Arkansas 12, across from the Walmart Distribution Center. He said the structure will be the first built in CrossMar Industrial Park.

"We plan to build quite a few more buildings in the future," he said.

Ligon said location is key when developers look at building speculative industrial space. He said access to main roadways, such as I-540, are important for a manufacturer's logistics.

Another proposed speculative industrial project would be on southwest J Street near the intersection with Southeast 28th Street. The 220,000-square-foot building would be a project of Rogers Warehouse Development.

Galloway said developers are hoping to cash in on Walmart's initiative to buy $50 billion worth of U.S.-made products over the next 10 years. The program is helping companies move some manufacturing jobs from foreign countries back to the U.S.

Redman & Associates announced last year it was relocating from some of its manufacturing of 6-volt, battery-powered ride-on toys that it sells at Walmart from China to the U.S. Redman moved into a 275,000-square-foot vacant facility in Rogers.

NW News on 03/23/2014