Rise in Retail Rents Fueling Construction, Land Sales

Retail is booming in Northwest Arkansas.

Experts said the market is so good that the problem is finding space to put people in. That demand has raised lease rates, which in turn has made it easier to convince property owners and developers to build.

“Retail in northwest Arkansas is very, very healthy right now,” said Alan Cole of Colliers International. “The market is extremely active. There is opportunity for tenants, for developers. There is a lot of demand and a limited supply right now, so you’re seeing some rents at levels we haven’t really seen.”

Cole handled the leasing for the Whole Foods Market that opened in March on College Avenue in Fayetteville. The Whole Foods-anchored shopping center filled quickly with other stores wanting — and willing to pay — to be next to a Whole Foods.

Rents going up didn’t happen just at Whole Foods. T.J. Lefler of Sage Partners said rents are blooming around the campus of the University of Arkansas in Fayetteville where restaurants and other businesses are situating themselves to be near the mass of student housing.

“The Whole Foods deal has been happening in other areas,” Lefler said. “Around campus, rates are through the roof and on MLK, too. At Pinnacle, the rates are going up by the mall. Overall activity is really, really good.”

Lefler said rates have doubled in some areas of northwest Arkansas. The rents have helped cushion the rising costs of land and construction, and better financing deals are helping everyone, Lefler said.

“Investors are wanting to pay more because they’re getting better deals on financing, and it’s making deals happen,” Lefler said. “There was a gap there for a while. There is always a gap. There was a bigger gap between what someone was willing to pay and what somebody was willing to sell it for. That gap has closed thanks to financing.”

Cole said the higher rents really take the starch out of construction costs for investors.

“Construction costs are high or are higher than they have been and, because of the costs of developing a project today, you have to have higher rents to make those deals work,” Cole said. “Because there is so much tenant demand in the market, you can get those higher rents so you’re seeing some projects happen that a couple of years ago couldn’t have happened.” The danger, of course, is for the pursuit of new buildings to outstrip what the market can tolerate. That happened a decade ago in housing, but Lefler and Cole both said this market is more rational.

Most multi-tenant buildings and centers are still getting pre-leased before construction. There doesn’t seem to be much appetite, even with rents booming, to just build and see who comes knocking.

“That’s what’s cool about our area,” Lefler said. “Our growth is strong, stable growth. You still can’t go out and build a big ol’ spec building. You have to have it preleased. That’s good, but our challenge of finding existing space for retailers is really slim.”

Read more in Arkansas Business

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