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Northwest Arkansas' commercial real estate market is doing well and should stay that way in the short term, said Tom Reed, founder of real estate appraisal firm Reed & Associates Inc.

"Leasing and sales are good," he said. "Overall vacancy rates have come down considerably."

Vacancy rates at the end of 2016 varied from about 5 percent in the retail and industrial markets to 7 percent in the office market, according to Xceligent, a commercial real estate information firm.

Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas, said the commercial market has not reconciled all the space vacated during and after the recession that ended in 2009, but what is being built now is being filled.

"Nonperforming space is always a problem," she said. "Two things will fix that: price or re-purposing."

Xceligent reports 678,471 square feet of retail space was vacant at the end of the year.

"Retail is hard," Deck said, "A large swath of real estate has to find new purposes."

There was 766,884 square feet of vacant office space and nearly 1.4 million square feet of vacant industrial space, Xceligent reports.

Increased leasing activity was an early sign of today's healthy market, Reed said.

"The leasing activity led to the increased sales activity. New construction is taking place," he said.

Reed said leasing space in one of the area's newly constructed office buildings costs tenants more than it has in the past because of increased building costs.

Office space is divided into three categories. Class A space is considered to be in prime locations with the best amenities. Lease rates averaged $22.17 per square foot at the end of 2016 for Class A space across the region. The rate averaged $19.93 per square foot at the end of 2014.

"New construction means higher lease rates, but the market is appearing to accept those higher rates. We'll have to see how long that lasts," Reed said.

Northwest Arkansas' steady population and job growth point to that trend lasting a while, Reed said. He said new jobs bring new people to the area who need places to live.

"The residential market should stay good and the commercial market will follow," he said. "I don't expect to see overbuilding in the commercial market, but the residential market is a different story. It ends up being a domino effect."

NW News on 03/26/2017

Print Headline: Commercial property vacancy rates show decline

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