Commercial rent rising as downtowns change in Northwest Arkansas

FAYETTEVILLE -- Storm Carr looked crestfallen as he walked around what used to be his French antiques store on Block Avenue in Fayetteville. A few stacks of books and some collectibles too big for boxes remained.

Storm and his wife, Chris, traveled Europe for two decades in search of the 18th- and 19th-century trinkets and furniture that filled French Quarters. Renaissance-style paintings of building fronts and foliage by late artist Charles Muise covered the walls. Dancing ladies adorned the restrooms.

"How would you like to leave all this?" he said. "Charles was the master. It took a long time for him to do all the artwork in here."

Carr couldn't make the rent anymore, which he said went up after the building changed hands. Fewer customers, changing demographics and a shift to online retail contributed to the store's inescapable demise last month, he said. An ill wife and his mother's death derailed Carr's effort to keep the store afloat.

Downtown properties across Northwest Arkansas are changing hands, and mixed building uses of residential and commercial are becoming the norm. Property owners see remodeling older spaces as an investment. Average rent has gone up across the four major cities over the years.

Market problem

Property owners who renovate usually spend more money on construction than building new, said Mervin Jebaraj, director of the Center for Business and Economic Research at the University of Arkansas, Fayetteville.

"The issue with why the rents are going up is clearly a market problem," Jebaraj said. "The rent's only going up because there's a shortage of properties."

The demand to live, work and play in the same area has increased with the increasing population of Northwest Arkansas, Jebaraj said. Dense, mixed-use development leads to more affordability.

"Theoretically, there should be enough room for people to redevelop downtown areas and still have affordable rents," he said.

The center released a study Thursday about Northwest Arkansas downtowns showing how rent for retail space has increased from 2012 to 2017. The average price of retail space for lease in downtown Bentonville rose from $11.31 per square foot to $16.67, the largest jump in the region. Fayetteville's downtown had the second-highest rent with $11.40. Space in downtown Springdale was $11.13 last year and $9.87 in downtown Rogers.

Retail vacancy rates climbed slightly in 2017 after declining from 2012 to 2016. The study attributed the climb to the addition of new spaces in downtown Bentonville.

Look around

A property owner has to consider a number of factors when deciding rent. A good chunk of the lease might cover loan payments. The cost of renovation or remodeling gets passed to a tenant. So do expenses, such as utilities.

That's all before a profit is figured in. Since 2012, Brian Reindl has owned the building with Block Street Records, the old JR's Lightbulb Club space that will become Pinpoint pinball bar and the former French Quarters, which Hot Springs' Fat Bottomed Girl's Cupcake Shoppe will take.

Reindl said property owners usually use what their neighbors charge as a guide.

"There's no 'I've got a desire here to jack the rents up to the maximum so I'm going to start kicking people out,'" he said. "It's people going out of business, then you look around, you put a price on it and negotiate. If the price was unfair, nobody would pay it."

Depending on the space, rent at Reindl's Block Avenue property runs between $14 and $20 per square foot, he said.

In July, investor Richard Arens bought the building across the street for $700,000 that houses Dark Star Visuals, Good Things Boutique, U of A Style Shop and Little Bread Company. His partner, longtime Fayetteville developer Rick Alexander, said plans are in the works for some sort of residential use atop the building.

Alexander said people wanting to live and work and shop downtown is nothing new, it's just a trend that has come and gone over the years. When the Northwest Arkansas Mall opened in the 1970s, Block Avenue became a boarded-up blight, he said. It recovered and transformed.

"The square was dead. D-E-A-D, dead. Completely," Alexander said. "Those mom and pop stores that were there were barely hanging on."

Alexander and his partner have no plans to kick anyone out, but they have increased the rent closer to the market rate.

More people living in a downtown area prompts amenities such as trail connections, lighting, street improvement and parking, which will help businesses, Alexander said.

Bentonville's downtown has the most people living in it with 4,167, according to the study. Its population grew 1.1 percent from 2010 to 2016. Fayetteville grew the most, about 2.9 percent, during that same time. The study counted 1,970 downtown Fayetteville residents in 2016.

The 2,270 downtown Springdale residents marked a slight growth of 1.5 percent from 2010. Rogers had 398 people living downtown in 2016, up 0.8 percent from six years prior.

A group of town homes built last year at the corner of Block Avenue and Spring Street sold quickly, each to the tune of about a half-million dollars. Sterling Hamilton, whose Sage Partners oversaw that project and brokered the $1 million sale of the Guisinger Building at 1 E. Mountain St., said developers need small businesses to thrive.

"Local businesses support everything that we're doing when it comes to the residential side of things, especially the value of residential," he said. "Nobody wants to have the only thing they can walk to be a Starbucks or a Taco Bell."

Only so much land

Downtown Rogers has affordable commercial property available, but as improvements are made, the rates go up, said Karen Wagaman, vice president of downtown development for the Rogers-Lowell Area Chamber of Commerce.

"I think we're seeing what we want to see, which is a gradual increase in the lease rates or in the sale prices, rather than a big spike," she said. "If we have a spike, then you get a bubble, and the bubbles will burst, and we don't want to see that happen."

A collaborative effort between the city, developers and business owners brought new life to the former Dollar Saver building at First and Walnut streets. Onyx Coffee Lab is moving its roastery there; Loblolly Creamery of Little Rock will have an ice cream bar; Heirloom restaurant will again have a presence downtown; and 11 apartments will go in among other tenants.

Springdale is in the middle of its downtown revitalization, thanks in large part to Walton and Tyson family money. A Walton Family Foundation grant last year helped provide matching funds for facade improvements to buildings along Emma Avenue in Springdale. Tyson also has renovated and expanded spaces for offices. Those investments will spark further development, said Kelly Syer, executive director of the Downtown Springdale Alliance.

The Walton-backed Ropeswing hospitality group operates Pressroom, Preacher's Son, Undercroft and Record all in renovated spaces of downtown Bentonville. Joe Baker, a longtime real estate broker who owns 111 N. Main St., home of the Station Cafe, said families such as the Waltons and foreign investors have the deep pockets to invest in revitalization.

A difference between who's buying commercial space in downtown Fayetteville versus downtown Bentonville is the difference between millionaires and billionaires, Baker said.

"They're investing in a very limited market, thinking that it'll be worth more," he said. "There's only so much land."

A little help

Stacey Wieties, owner of Dark Star Visuals on Fayetteville's Block Avenue, said her rent went up to market rate after the building sold in July. She signed a one-year lease.

The building has changed hands numerous times over Wieties' 26 years with the store. The dynamic of that stretch of downtown is changing, just as it did when the city redesigned Block Avenue, and put in paid parking and during the Great Recession, she said. Wieties sees Arens and Alexander as friends and part of the community.

"They haven't said, 'In a year you have to move out.' All they said is, 'We've got a year lease for you to sign,'" Wieties said.

Wieties is keeping an open mind, but she'd like to keep selling her imported bohemian metaphysical stones, beads and clothing in downtown Fayetteville. It's kind of part of the store's identity at this point, she said.

Jessy Lang, owner of Good Things Boutique since 2008, also is weighing her options. She negotiated a shortened lease in October because she didn't want to decide what to do during her busy season at the end of the year.

"It's all a big question mark right now," she said. "But because of everything being so uncertain, I just wanted to have the option and the flexibility to either move to a different location or close if I have to."

Part of the city's contract with the Chamber of Commerce entails finding space retailers can afford across the city. Business owners can walk into the chamber's doors and access reams of data on growth patterns, amenities, services and other helpful information, Chamber President Steve Clark said. The service is free and doesn't require a membership.

Just about everyone says they want to start their business downtown, Clark said. The chamber will work with prospective business owners and figure out if that's really the best way to go, he said.

The chamber also helps struggling businesses, Clark said.

"We'll sit and talk to you for hours, if that's what you want to do," he said. "The very best businesses in Fayetteville are the ones we already have. We'll get new ones because of the ones we have. It's time well spent from our perspective."

NW News on 02/04/2018