The vacancy rate for commercial real estate during the last half of 2020 remained unchanged in Benton and Washington counties, according to the most recent Skyline Report, indicating general strength in the market despite the impact of the coronavirus pandemic on the overall economy.
According to the report released Tuesday, the vacancy rate for commercial space in the two-county area for the July through December period stood at 10.8%, flat when compared with the previous half of the year.
During the second half of the year, just shy of 500,000 square feet of commercial space was added to the two counties and there were $188.8 million in commercial building permits issued, down from $196.2 million in the first half of the year.
For all of 2020, the total value of commercial building permits was $385 million, a 6% increase from 2019's $363.9 million, the highest yearly total since the Skyline Report began.
Mervin Jebaraj, director of the University of Arkansas Center for Business and Economic Research, said the commercial real estate market was balanced and healthy in Northwest Arkansas despite the pandemic effect. He noted the large corporations that call the region home didn't give up leases during the pandemic and they are preparing for a time when workers will return to the office.
What that will really look like remains to be seen, Jebaraj said. He said the open floor plan concepts of the past that put desks close together and offered little privacy likely will revert to the cubicles of the past along with much greater spacing of desks and the need for more conference rooms and meeting space. The result will be a need for more floor space, even if fewer workers return to the office five days a week.
"We'll have to wait and see what develops later this summer," Jebaraj said.
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 the office space submarket, the vacancy rate was up sightly at 10%, up from 9.8% for the first half of the year, despite adding 325,188 square feet, the largest amount since the first half of 2007. During the past five years, 1.67 million square feet of office space has been built in Benton and Washington counties and despite the additional space, the vacancy rate has dropped from 12.9%.
Vacancy rates also ticked up in the retail and warehouse submarkets. The vacancy rate in retail space was 11.4%, up from 10.6% for the first half of the year. In the warehouse segment, the vacancy rate for the past six months was 9.3%, up a full percentage point from 8.3% for the previous six months.
Steve Lane, managing director of the Northwest Arkansas office of Colliers, a commercial real estate brokerage professional services and investment management company, said certain submarkets in commercial real estate in the region are still quite tight. He noted high demand and little availability in Class A office and retail space in the two-county area.
Jebaraj said older retail spaces in particular took a hit from pandemic shutdowns and restrictions.
"It accelerated the trends that were already happening," he said.
Kelly Carlson, senior vice president/commercial loan manager with Arvest Bank Benton County said the commercial real estate segment in the region has remained strong throughout 2020.
"Our commercial lending teams across the region continue to help developers find opportunities for intelligent developments," she said in a statement. "We are all fortunate to be in an area that has weathered a full year of unprecedented change and challenges."
According to the Commercial Market Insights March report from the National Association of Realtors Research Group, even though the the economy is recovering and vaccine distribution has been increased, commercial real estate acquisitions nationally were down 59% in February as investors remained leery. The report noted uncertainty in office market as investors determine how the shift to working from home will affect demand.
The report notes: In summary, the commercial real estate market is still in dire straits but with the economy receiving continued fiscal and monetary support and with a vaccine distribution program that is targeted to be completed by this summer, the outlook for commercial real estate can only be better, not worse.