Brock: I'm Roby Brock. Welcome to this edition of the Northwest Arkansas Business Journal Report. Today we look for insight into the commercial real estate market in Northwest Arkansas and beyond. Clay Ramey, vice president of capital assets for Tempest Realty Partners, recently offered his thoughts on commercial real estate trends.
Brock: Tempest Realty Partners develops and manages commercial, office and industrial properties across the Southeast and Midwestern U.S. Vice President of Capital Assets Clay Ramey said build-to-suit development, especially for industrial and office space, is picking up momentum in the post-COVID return to on-premise workspace. Let's talk a little bit about what Tempest Realty Partners does. For those that don't know, tell me a little bit about the niche that you guys provide.
Ramey: Tempest Realty Partners is a commercial real estate investment firm based here out of Central Arkansas. We have properties up in the northwest, we have properties here, but predominantly most of our properties are across the Southeast and Midwest. We focus on commercial office and industrial, we do some development, and we do a lot of manufacturing, sale-leasebacks and office — kind of a wide range of stuff, and we have a wide range of investors.
Brock: Give me a little bit of a sense of the footprint that you guys have. You mentioned the Southeast and the Midwest, and why that's a sweet spot for you guys. It may be because of the makeup of the folks in your firm, but it may be because that's where a lot of growth is. Why is that a sweet spot for you?
Ramey: We've really been focusing on the heartland — and I know y'all have the Heartland Forward initiative up in Northwest — but a lot of these secondary markets have really become our main focus over time. Markets like we see in Arkansas, with Central Arkansas and Northwest — some of them are super steady, like Central Arkansas, and some of them have real high growth like you've experienced in northwest. What makes those markets really attractive to us is the labor dynamics, the cost basis and just the steadiness of them. The big gateway markets can see the big swings and real high rate increases, but they also can see a lot of new supply hit. The much larger peers that are really trying to deploy a significant amount of capital focus on those markets, and a lot of that has to do with where they can invest the amount of capital they need to invest. Whereas coming to Columbus, Ohio, it's much harder to find enough projects that make sense for their teams — or Rogers, Arkansas and things like that.
Brock: Let's talk about two different, divergent worlds in the development world here. You've got build-to-suit and you've got speculative development. You guys tend to do more in the build-to-suit market. Tell me what's at work in the marketplace, particularly in Central and Northwest Arkansas with those dynamics.
Ramey: We've done build-to-suits lately for industrial and for office. What you're seeing — and this is the story we're also seeing in our regular non-build-to-suit office — is tenants want exactly what they want. A lot of them are having consolidation from locations, or they're trying to increase morale and buy-in from employees on returning to work and being effective. The office is not just a place anymore, but it's a place to develop talent and retain talent and move forward instead of just sitting at the desk. You've got to offer some more amenities now to kind of entice that workforce as well.
Brock: We're five years past the pandemic now. Explain that trend a little bit and why you see some of the folks that you guys do work with wanting to put more into those office spaces.
Ramey: If you back up pre-pandemic, a lot of the conversation we had with large tenants coming to offices was how much parking can you provide, and they wanted to know how dense of an office they could be — how many people they could fit inside the facility. Whereas now there are employers that have hybrid schedules, there are employers that have a much more collaborative schedule since COVID taught us all how to work remotely, but also work more effectively from a touchdown space. We're seeing employers consolidate maybe to a smaller square footage, but it's a much nicer footprint and a much more collaborative footprint. We're seeing that up in Pittsburgh and in parts of Minneapolis, parts of Columbus — employers want an efficient floor plan, but they also want to be real close to amenities that employees can drive and park at, but walk to lunch, have a fitness center, have other amenities within the building too.
Brock: Look into your crystal ball — tell me what you see on the near-term horizon here. We've got spiking energy prices, interest rates kind of sitting at a pretty spot right now, not as pretty as we've been used to but certainly not as high as they were, inflation with mixed signals. When you put all of that into a jigsaw puzzle on the table, where do you see opportunity for growth?
Ramey: We're really looking at a number of properties and we want to better understand the story of the property and the story of the market. Backing up from underwriting assumptions and asking, OK, what's this market doing? Where has it been? Where is it going? What are the tenant makeups? What are their decisions with the properties post-COVID? What we've seen recently is a lot of flight to quality, but we've also seen the Class B stuff start to — a lot of buildings have started to be repurposed. As a Class B office owner, as you have other supply that's converted, we're seeing demand start to increase on those Class B properties. With the increase in oil and things like that, that's going to drive reproduction costs up. There's still going to be tenants that want newer space, but the value proposition of going into a Class B space is going to become more evident. I think we're going to see tenants choose that from a profitability standpoint over the next year or two.
Clay Ramey is vice president of capital assets for Tempest Realty Partners. You can catch more of their conversation and keep up with real estate news from across the region at NWAbusinessjournal.com. That's all for this edition of the Northwest Arkansas Business Journal Report. I'm Roby Brock. Until next time, take care.
Ozarks at Large transcripts are created on a rush deadline and edited for length and clarity. Copy editors utilize AI tools to review work. KUAF does not publish content created by AI. Please reach out to kuafinfo@uark.edu to report an issue. The audio version is the authoritative record of KUAF programming.
