Skyline Report: Northwest Arkansas Commercial Vacancy Below 6%, Permit Values Down 50%

Northwest Arkansas continues to absorb commercial space as the value of building permits issued in the area fell by more than 50%, according to a new real estate report. The commercial vacancy rate fell under 6% for the first time since the second half of 2022.

Fayetteville-chartered Arvest Bank released Tuesday (April 8) the Skyline Report for commercial real estate in Benton and Washington counties for the second half of 2024.

The Center for Business and Economic Research (CBER) at the Sam M. Walton College of Business at the University of Arkansas completed the report.

Key Findings

The commercial vacancy rate in Northwest Arkansas fell to 5.8% in the second half of 2024 from 6.5% in the first half of the year. The decline comes as the area added 491,242 square feet of new commercial space. It's the first time the rate has fallen below 6% since the second half of 2022 when it was 5.6%. Since then, 2.18 million square feet of new commercial space has been added to the market.

The report shows the value of commercial building permits issued in the period fell by 51.9% to $195.7 million from $406.9 million in the first half of the year. The value declined by 32% from $287.6 million in the second half of 2023. Permits issued for Walmart were $5.3 million in the second half of 2024.

"The overall commercial real estate market in Northwest Arkansas is balanced and healthy even with significant new space being added. To see decreases in all three of the largest submarkets of office, retail and warehouse space compared to the first half of 2024 demonstrates strong demand across the region."

— Mervin Jebaraj, CBER Director, University of Arkansas

Market Breakdown by Sector

Office Space

The office vacancy rate fell to 6.3% in the second half of 2024 from 7.5% in the first half of the year. Leasing activity was solid in the class A and medical office submarkets.

Retail Space

The retail vacancy rate declined to 4.9% in the second half of 2024 from 6.2% in the first half of the year. The submarket added 3,840 square feet of new space. Leasing activity was strong in the class A and class B retail submarkets.

Office/Retail Mixed Use

The office/retail vacancy rate decreased to 6.1% from 6.4% as 62,450 square feet of new office/retail space was added to the market. Leasing activity in the class A submarket was solid.

Warehouse Space

The warehouse vacancy rate fell to 7.6% from 8% as 367,352 square feet of new space entered the market. There was 57,600 square feet of new office/warehouse space, but no new retail/warehouse space, as demand rose for new flex warehouse space.

According to the report, the office, retail and warehouse submarkets comprise 39.1 million square feet or 73.1% of all leasable space in Northwest Arkansas.

Hotel Development

The report also shows that since 2009 the number of available hotel rooms in the area has risen by about 600 despite significant population growth. However, the construction of several hotels will add 1,190 new hotel rooms in the coming months. At the end of 2024, 10 new hotels were under construction, including:

• 199-room Residence Inn-Springhill Suites in Fayetteville
• 168-room Tapestry Hotel in Rogers
• 153-room AC Hotel by Marriott in Bentonville
• 142-room Compton Hotel in downtown Bentonville
• 131-room Moxy by Marriott in Fayetteville

"I think sometimes those of us in Northwest Arkansas lose perspective on how fortunate we are to be living and doing business in a market that consistently defies national trends. We have added more than 2 million square feet of office, retail and warehouse space in the past two years and have absorbed all that space and more."

— Isaac McKinney, Executive Vice President and Loan Manager, Arvest Bank – Siloam Springs region

What This Means for Northwest Arkansas

These findings indicate a robust commercial real estate market in Northwest Arkansas, with strong demand across all sectors despite significant new construction. The declining vacancy rates and strong absorption of new space demonstrate the region's continued economic growth and business expansion.

For businesses looking to establish or expand operations in Northwest Arkansas, the current market conditions present both opportunities and challenges. While vacancy rates are low, indicating strong demand, the significant reduction in building permit values may signal a shift in development patterns that could affect future supply.