Benton, Washington counties see business-space increases

Overall vacancy rate dips in 2021

The first half of 2021 saw commercial real estate rebound in general in two key counties in Northwest Arkansas, but vacancy rates in the office sub-sector rose as covid-19 concerns kept more employees working at home, according to the Skyline report released Tuesday.

The vacancy rate for all commercial property in Benton and Washington counties stood at 8.9% for the first six months of 2021, compared with 10.8% for both halves of 2020, according to the report.

About 1.15 million square feet was leased during the period while nearly 247,000 square feet of new commercial space added, resulting in total positive absorption of about 907,000 square feet, the highest level since 2012. Positive net absorption is when more commercial space was leased than was made available on the market.

Mervin Jebaraj, director of the University of Arkansas Center for Business and Economic Research, said demand in the warehouse sector is being driven by a need for space as more and more people shop online because of shifting trends brought on in part by the pandemic

The value of building permits in the two counties hit an all time high in the first half of this year at about $647 million, with $435 million attributed to the new Walmart headquarters project in Bentonville. With that project excluded, the value of permits for the first half of 2021 was about $212 million, up from nearly $189 million for the last half of 2020 and the second-largest total since the report began, Jebaraj said.

"What is evident from this report is that the commercial real estate market in Northwest Arkansas continues to expand and, generally speaking, demand continues to keep pace with the growth," Kelly Carlson, commercial loan manager with Arvest Bank of Benton County, said in a statement.

The Skyline Report examines the residential, commercial and multifamily real estate market in Benton and Washington counties. Researchers at the University of Arkansas, Fayetteville's Center for Business and Economic Research compile data for the report. Arvest Bank first sponsored the Skyline Report in 2005.

In May, during the National Association of Realtors' Commercial Economic Issues and Trends Forum, Lawrence Yun, chief economist for the association, said economic expansion and jobs recovery will help improve occupancy rates across all commercial real estate in the U.S. The National Association of Realtors is a trade association, with more than 1.4 million members working in residential and commercial real estate.

In Benton and Washington counties, the warehouse sector was a major driver of the reduced vacancy rate for the first six months of the year, posting a 6.6% vacancy rate down almost 3% from 9.3% in the second half of 2020, according to the Skyline Report. No new warehouse space was added during the period.

The office sector in the two counties saw its vacancy rate tick upward to 11.2% from 10.8% for both halves of 2020. During the first half of 2021, companies consolidated multiple Class A office spaces with more employees working remotely while the pace of new and renewed leases slowed because of the covid-19. According to the report, the office sector added about 165,000 square feet but only about 1,000 square feet of that was in use.

The UA's Jebaraj said most people hadn't expected the pandemic to continue to put pressure on the office sector.

"I don't think most people expected to be working from home for so long," he said.

The vacancy rate for the retail sector in Benton and Washington counties was 10.8%, unchanged from the second half of 2020.

Nationally office rents have also declined, and it is unclear if there will be more demand for space even as workers return to their offices, the National Association of Realtors' Yun noted. It's expected that the office vacancy rate around the U.S will stay at 16.5% in 2022, with retail vacancies projected at 11.5%, according to the association.

Also at the May conference, John D. Worth, executive vice president for research and investor outreach at the National Association of Real Estate Investment Trusts, said across the U.S. companies will be trying new things concerning how they use office space, but he's confident the sector will do well after a period of experimentation.

"Work from home is the most important question facing the future of commercial real estate coming out of covid-19," Worth said.

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