Roby Brock: What's happening in the real estate scene in Northwest Arkansas? We'll catch up with Marshall Saviers, CEO of Cushman & Wakefield | Sage Partners, today on the Northwest Arkansas Business Journal report.
Joining me now, Marshall Saviers. He's the CEO and principal at Cushman & Wakefield | Sage Partners. Always good to get his take on what's happening in the real estate world in Northwest Arkansas. Thanks for being here.
Marshall Saviers: Happy to be here, Roby. I always enjoy it.
Brock: All right, Marshall, let's begin with your most recent quarterly report. Lots of things to break down. I want to begin with office vacancies in Northwest Arkansas at the end of the year. I would consider it a pretty tight market space up there for office vacancies. I thought that no one was going to go back to work at offices after the pandemic.
Saviers: Isn't that funny how that works out? It's great to see everybody back in the offices, as a real estate guy. People's work habits have changed — if you look at our parking lot on a Monday or Friday, it's not as full — but the tenants are expanding. They are back to work. Certainly everybody follows the lead of Walmart here, who is extremely back to work with their new campus. When you look at our numbers, we're at an approximate 4.5% vacancy rate, which we believe is the lowest in the country. We absorbed over 2 million feet of space last year with very little being delivered. The only building being delivered right now is The Visionary, which is a new building being built right by our office here in the Pinnacle area of Rogers. We do the leasing and management and development of it, and it's amazing — I toured it yesterday with a client, and there are people touring it almost every day because of the lack of supply in the market. There continues to be this flight to quality. People want all the amenities in their building, whether that be a restaurant, conference center or places interspersed throughout the building where they can hang out and get out of the office. One cool stat that I learned when I was working on the Ledger in Bentonville is people want to move about five to 10 times a day while they're working. So all these office spaces now are being built for that mobility and trying to recruit and retain talent.
Brock: I want to circle back to something you mentioned, but first let me get through the rest of the list. Industrial vacancies actually rose this last quarter. This is one that maybe fluctuates a little more because a big project can come on and change the trajectory of everything. What are we seeing in the industrial space right now?
Saviers: Unless there's a huge swing either way, I don't get too high or low about these numbers. We're still hovering around a 6.5% vacancy rate — healthy. We had net absorption last year of about 850,000 feet, so that's good. The big takeaway is rents continue to go up. They've gone up 3% again this year. They're almost $10 a foot triple net, which means they've gone up almost double in the past five years. And when you look at new deliveries coming to the market, it looks to be a 60% decline this year, so these numbers are going to come down. When big buildings aren't delivered, our vacancy rate goes down. We've got one new 200,000-square-foot building that just went up by the J.B. Hunt campus in Lowell, and we actually just signed a 100,000-square-foot lease on that this week. Things are going well in the industrial market. It's healthy, it's strong. Rents continue to go up, which they need to given the construction costs.
Brock: Fundamentals look good in the retail sector space as well. Tell me what your report is showing and what you think is at work behind the scenes on that.
Saviers: We've touched on this before — we've got somewhat of a problem on the retail side because we're too tight. We had 270,000 feet of new deliveries and 253,000 of net absorption, so basically we're hovering around this 3% mark. We can't keep up. When we deliver something, it almost instantly gets filled. We're going to have about 300,000 feet delivered in the short term, and 70% to 75% of that is already pre-leased. It just shows the demand out there is really, really strong. Frankly, we need more retail, and we'll get that through larger mixed-use projects more so than smaller one-off buildings, mainly because we need the economies of scale to make the numbers work.
Brock: So wrapping up office, industrial and retail — how much of what's going on would you call speculative? Is it "I want to know I've got an audience for it before I ever turn dirt"?
Saviers: Depends on the size and scale. The larger mixed-use projects — whether it be the new Ruth's Chris development here in Rogers or the Whole Foods development — they'll start with a lot of speculative retail space because they've already got an anchor tenant, and usually they're going to have multifamily on top. So the retail is there to attract and be an amenity essentially. They'll speculate. But if you're building a smaller strip center, they usually want an anchor tenant or two to kick off the development because it helps them get better financing and it's just less risky.
Brock: You mentioned multifamily — that would be apartments for the most part. What are we seeing in the marketplace right now? Affordable housing is a huge crunch, not just in Northwest Arkansas but all over.
Saviers: It's the softest sector and the only one that, when you compare it to the rest of the country, we have a higher vacancy rate than the rest of the country, because of all the deliveries we've had. I'm not worried about it long term because of the in-migration, people coming to Northwest Arkansas. But short term, there's some pain there. We basically had double the amount delivered versus absorbed, unit-wise. We had 3,200 units delivered, only 1,600 absorbed. So that's why that number keeps going up. Some of that is because what's being delivered is a lot of Class A multifamily. Those are high market rents. Not everybody can afford those. Our rents have gone up since 2019 50%, and our home prices have gone up 70%. That creates a big pressure point on the lower- or even moderate-income people that need just a place to rent. It's just really hard to find that out there. There's a lot more Class A available, but not everybody can afford that.
Brock: How do we resolve that dilemma? Do the folks that are building just have to say, "I'm going to build something for more lower- to moderate-income levels"? Are there people out there in that lane?
Saviers: Fortunately, yes — there are people, including in the Northwest Arkansas Council, that are focused on how do we create more affordability. A lot of that, and we've touched on this before, is doing more infill developments and not just throwing up things that create an infrastructure strain. The more infill developments you have, the better the economies of scale you can have to do it at a lower price. We need more of that. Frankly, we need more subsidies — the government is going to have to help here, whether that be state or federal — to make sure that we have places for the people to live that are our nurses and teachers. This isn't just for lower-income people that don't have jobs. This is for a lot of the people that we rely on every day in the service economy. It's a big, hairy problem. We're not the only region going through this — every high-growth region is going through this, but it's exacerbated here. The Milken Institute report just came out where Northwest Arkansas was voted the No. 1 high-growth metro in the country, beating out Charleston, Raleigh, Orlando, Austin, all these markets. When you have all these great growth metrics, that's awesome, we're so happy to have them. But it does create issues, whether that be a low amount of retail that needs to be delivered or affordable housing.
Marshall Saviers is CEO of Cushman & Wakefield | Sage Partners in Northwest Arkansas. You can catch more of our interview online at NWABusinessJournal.com. That's all for this edition of the Northwest Arkansas Business Journal report. I'm Roby Brock. We'll see you next time.
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