Officials with Colliers International/Arkansas this week presented data to clients, bankers and contractors that the company has collected about the commercial real estate market in the greater Little Rock area.
The presentation included hard data that confirmed what many said they knew intuitively, that all three sectors of the central Arkansas commercial real estate market -- office, industrial and retail -- are more or less stable.
Colliers' executives presented separate snapshots of the office, industrial and retail sectors to an audience of more than 100 people Thursday at the Innovation Hub in North Little Rock.
The presentations also included some potentially significant, but unconfirmed, hints at growth in the sectors, including the planned expansion of an unnamed plastics company to a 500,000-square-foot building at the Port of Little Rock; continuing interest in the market by e-commerce giant Amazon, which wants to locate a 200,000-square-foot distribution center in the market, and by Topgolf, the golf, party venue, sports bar and restaurant company. Representatives of Topgolf reportedly met with Little Rock city officials earlier this week.
Company officials said it has been difficult to get information about the market because of legal turmoil involving the companies that collect real estate data.
"We set out to change that, step into it as a firm, not to compete with anybody, but just make sure that our brokers and our clients and all of you have access to the best data and that we were able to back up what we were saying with real-time, customizable analytics," said Isaac Smith, Colliers International/Arkansas president.
Retail is the "most public sector" of the commercial real estate market, which means the public will more quickly notice a vacant 50,000-square-foot big box store than a similarly sized office space or warehouse because retail stores typically are in prominent locations in heavily trafficked corridors, said Todd Rice, a principal and executive vice president at Colliers.
"It's in your face every day," he said.
The onslaught of online retailing has hurt traditional retailers in apparel, pet supplies and electronics everywhere, not just central Arkansas, Rice said. Online's share of sales has more than doubled since 2014 to a 12.3% share of retail.
"It's on our phone, it's on our laptop at home," he said.
Retail real estate is subdivided by Colliers/Arkansas into four categories that are led by power centers, which are large outdoor shopping malls that often include three or more large retailers, as well as an array of restaurants and smaller retailers. Shackleford Crossings in west Little Rock is an example.
Power centers account for about 2.4 million square feet of the total 44.5 million square feet of retail commercial real estate in the region, according to Colliers.
While the category accounts for less than 5.5% of the sector, its vacancy rate is 14.7%. "Power centers have been left with big vacancies," Rice said. "When a 50,000-, 60,000-, 70,000-[square-foot] box goes dark, your vacancy number goes up pretty fast."
If big retailers move out, someone is going to have to repurpose the space. And they have. Rice cited the $38 million Premier Gastroenterology Associates development of an old Kmart on North Rodney Parham Road and the redevelopment of the Sears department store property on South University Avenue.
"Fortunately, landlords, developers and retailers have gotten very creative in the last couple of years and have been looking at ways to repurpose and reuse some of these facilities," Rice said.
Overall, the retail sector is holding its own compared with national vacancy trends. Little Rock's vacancy rate in the sector is 4.5% compared with 4.9% in Dallas and 9.5% in Oklahoma City, according to Colliers.
Rice said national retailers continue to look at the greater Little Rock market. A Trader Joe's grocery is scheduled to open as soon as next month in west Little Rock. Costco, a membership-only retailer; Ruth's Chris restaurant chain; and Topgolf all remain actively gauging the market for a location, according to Rice.
Mark Bentley, a principal and managing director for the firm, provided an overview of the state of the office market, which ranges between 17 million square feet in greater Little Rock to 23 million square feet if government agency space is included.
The vacancy rate ranges from 10.3% in the central business district, or downtown, to 11.4% in the suburban areas, according to company data. Average rental rates are, respectively, $17.50 per square foot and $19 per square foot.
That vacancy rate compares to 5.5% in Manhattan and to 15% in Dallas, Bentley said. Nationally, the office vacancy rate is 13.4%, according to Yardi, a California company that develops and supports investment and property management software.
Bentley acknowledged softness in parts of the central business district, driven in part by downsizing of banks in the downtown towers. Bank of America, for example, leases about 25,000 square feet, down from 75,000 square feet, he said.
Among the other significant moves in the office real estate market is the state's acquisition of the former Verizon building in Riverdale, which will consolidate state agencies from other office space. The 300,000-square-foot building was sold for $26 million.
Less-known but potentially significant moves in the sector include the acquisition announced earlier this year of Qualchoice Health Insurance by Centene Corp. of St. Louis. Together, the companies have about 200,000 square feet of space spread across five buildings. The acquisition likely will lead to some consolidation, Bentley said.
Another concern is the dramatic increase in construction costs for office remodels, which have risen 56% over the past six years, he said. That is somewhat offset by the market acceptance of annual escalators in lease agreements.
"It's going to be stable," Bentley said. "I think we'll see rental rates continue to inch up."
Drew Holbert, a principal and vice president at the firm, called the industrial sector a "very stable, very healthy market."
The sector totals 55 million square feet.
Bulk warehouses, which are buildings that have loading docks and encompass 100,000 square feet or more, account for 7 million square feet of the market. Flex warehouses, which include office space, total about 6 million square feet. The "other" category accounts for the rest.
The vacancy rate for the bulk market is 9%, 5% for the flex and 10% for other spaces, according to Colliers data. The average rental rate for each space in the sector, respectively, is $3.50, $6.25 and $2.50 per square foot.
The market is an active one, according to Holbert. He cited the plastics company planning to take over a location at the port and interest in moving into the market from Amazon, an ammunition maker, a food company and an undisclosed company for warehouses with at least 100,000 square feet of space.
Hurting the market is the lack of modern warehouses with fire-protection sprinkler systems, Holbert said. That might change because he said he has detected interest in the market for warehouses built "on spec" without a buyer or renter in line.
If that happened, "it would be a great testament to the health of our market," Holbert added.
Business on 09/28/2019