Demand rises for industrial space to lease

LR rents grow as vacancies dip with little construction

Special to the Arkansas Democrat-Gazette - 04/03/2015 - Drew Holbert, principal and vice president of brokerage for Arkansas for Colliers International
Special to the Arkansas Democrat-Gazette - 04/03/2015 - Drew Holbert, principal and vice president of brokerage for Arkansas for Colliers International

Correction: The market for industrial users in the Little Rock area is about 50 million square feet. This story incorrectly portrayed the size of the market.

The amount of lease space available for users in Little Rock's 5-million-square-foot industrial market is shrinking. Brokers say it could cause rates to rise and force some companies to build their own warehouse and distribution centers.

A quarter-by-quarter report produced by the national commercial real estate information service Xceligent Inc. shows the vacancy rate for the area's industrial properties was 10.9 percent in the first quarter of this year -- lower than any quarter in 2014.

Demand for industrial space is rising because people are going back to work, said Hank Kelley, chief executive officer of Flake & Kelley Commercial.

"It's really about the industrial world being more toward full employment," Kelley said.

The way consumers shop is changing, and it's affecting the industrial real estate market.

"Where retail and industrial come together is the world of distribution," mostly because consumers are buying more online, Kelley said.

Case in point: the $50 million, 300,000-square-foot distribution center FedEx is building in southwest Little Rock. When it opens in August next year, the fully automated building at 11300 Alexander Road will replace FedEx's two existing locations in Little Rock and North Little Rock.

Because Little Rock is a transportation hub -- with a river port, Interstates 30 and 40, and rail -- it has a lively industrial market but little to no new construction, Kelley said.

Tenants are setting up shop in some industrial buildings that have been vacant for years, said Drew Holbert, principal and vice president of brokerage for Arkansas for Colliers International.

"It's a supply and demand function," Holbert said.

Colliers recently closed several lease deals on industrial space. Bowman Plaza I and Bowman Plaza II at 4700 S. Bowman Road, a total of about 180,000 square feet, were only half occupied in January and are now up to 90 percent occupancy, primarily because of a contract with Carrier Corp., the air-conditioning equipment company, Holbert said. Community Coffee and Coram, a division of CVS Pharmacy, also took space in Bowman Plaza recently.

Colliers also put a couple of larger users into the Geyer Springs Business Center, 6621 and 6800 Geyer Springs Road, Sears & Roebuck Co.'s former distribution center. The center, also about 180,000 square feet in two buildings, was only 40 percent taken in March 2013 and is full today. Haldex Brake Products and and Red Bull Distribution made a home there.

Flake & Kelley works mainly with a couple types of industrial clients: those looking for massive space, 100,000 square feet or more, and those seeking midsize square footage, 25,000-50,000 square feet. The vacancy rate among the midsize users is well below average for the sector, 7.8 percent for this year's first quarter.

Gary Smith, director of business development with Flake & Kelley, said property to lease in the midsize range in west Little Rock in particular, "is almost impossible to find."

Those midsize tenants are often looking for "flex space," or a combination of types of use, such as a retail showroom with warehouse space in back or an office with storage behind it. Retailers around the country who once invested solely in storefronts are now adding more distribution centers to their real estate portfolios, Kelley said.

The Xceligent report covers Little Rock, Jacksonville, Maumelle, North Little Rock and Sherwood. Space is divided among categories including light industrial, manufacturing, warehouse/distribution and flex space.

"In my opinion, there will be some new building that takes place ... and a wave of developers or companies building for need," Kelley said. "If there's a shortage of space that fits what corporate clients need, then we're in the business of building for people who have those needs."

Rental rates are inching up, Xceligent shows in its 2014 compilation. Owners were asking an average of $4.15 per square foot in the last quarter of 2013, $4.37 in the first quarter of last year, $4.32 in the second, $3.69 in the third and $4.74 in the fourth.

The rents have to go up some to generate a significant need for new construction, according to Kelley.

SundayMonday Business on 04/06/2015

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