story by Rose Ann Pearce, special to The City Wire
Northwest Arkansas apartments reached a new high in occupancy as the 2015 began with apartments communities nearly full, reporting a 98% occupancy rate, according to the CBRE year end-2014 apartment market survey.
That’s the highest occupancy rate recorded since CBRE, a commercial real estate company, started the survey in 2010. Brian Donahue, an associate with CBRE, conducted the survey.
The survey found the occupancies and rental rates increased 1.5% over 2014, which indicated a strong apartment market in the Bentonville, Rogers, Springdale and Fayetteville areas. According to the survey, the average rental rate for a two-bedroom, two-bath apartment in Fayetteville is $669; Springdale, $615; Rogers, $861; and Bentonville, $725.
The CBRE report noted that “the strength of the multifamily market mirrors the strength of the local economy. With an unemployment rate of 4.5% in November 2014 for the Fayetteville-Springdale-Rogers-Bentonville area continues to out-perform the state and nation.”
The survey included more than 22,000 units of the approximately 29,000 apartment units located in the four cities. Property owners and managers provided the information. The data doesn’t include student housing apartments which have opened in the last two years around the University of Arkansas.
A separate Skyline Report released Thursday (April 16) by the University of Arkansas and funded by Arvest Bank reported similar results. Skyline notes regional multifamily vacancy rates of 3.7% in the back half of 2014, down from 5.8% reported a year ago. Within the specific cities the Skyline Report notes that Bentonville had the largest year-over-year decrease in vacancy rates from 6.3% in the second half of 2013 to 1.4% in the second half of 2014.
In Fayetteville, vacancy rates decreased from 7.7% in the second half of 2013 to 5.3% in the second half of 2014.
The Skyline Report also noted that in Bentonville more than 1,000 rental units have been announced or are under construction. In Fayetteville, close to 4,000 rental units have been announced which will likely increase the vacancy rate in future quarters as these units come online.
Kathy Deck, director for the UA Center for Business and Economic Research, said multifamily unit vacancy rates in every market were at the bottom of the range for sustainable levels to start 2015. She said some of the decline in vacancy rates in rental properties can be attributed to some fear of the single family residential housing market and uncertainty on behalf of the renters on whether they can qualify for mortgages.
“We’ve seen strong employment growth in Northwest Arkansas and all the multifamily data we are seeing aligns with that growth,” Deck added.
MULTIFAMILY DEALS
Donahue said the area also recorded an increase in transaction activity last year with 12 deals for apartment communities over 50 units in size compared to only seven in 2013. Of the 12 transactions, eight involved properties built since 2000. The average sale price of these eight was $43,159 per unit and the range was $26,000 per unit to $75,000 per unit. Other communities were older: one of 1990s vintage; two were 1980s and one was 1970s.
“We expect transaction volume to exceed historic norms in the near term as demand for multifamily investments continues to remain high,” Donahue said in the survey narrative.
With investor competition high in primary and secondary markets, regional and national investors are becoming interested in tertiary markets like Northwest Arkansas, he said.
“If competition for multifamily assets remains high in primary markets, then we feel the potential of being added as a preferred territory” for real estate investment trusts, making institutional capital possible, Donahue said.
COMING SOON
With the high occupancy rate across the region, there are at least 549 new apartment units under construction including the Trails at Bentonville and 62 units at Thrive, also in Bentonville. Donahue said the completion of these units could affect occupancy rates in the near term as they are set to open this year.
Four other apartment communities have been announced but all are in different phases of planning and development. The closest to completion is Promenade Point in Rogers, a 200-unit luxury community scheduled to have the first phase open by the fall. The $14 million project is managed by Sterling Construction Corp.
“The 200 units are underway now with a leasing center, maintenance building and trash compactor. The leasing center contains a cyber café, media room, swimming pool, pool cabana with grill station, outdoor fireplace with TV and fitness center. We broke ground in November and the leasing center will be open in late June with the first building available in July. The project will be completed in December of this year,” said Darren Fulford, spokesman for Sterling Group.
Other projects on tap are Uptown Apartments on Steele Boulevard in Fayetteville and the Links of Fayetteville, phase two, off Wedington Drive. The Parc at Bentonville should show some progress this year, Donahue said.
Occupancy rates above 95% generally spur new construction although that wasn’t the case in 2014, which is likely why the most recent occupancy rate is at 98%, Donahue said. But, he said more market construction announcements are expected this year.
Other CBRE predictions for 2015 include:
• Rental rates are expected to increase above the 2014 levels;
• As new units come on line, occupancy rates are expected to drop one percent in 2015 but still remain above a healthy 95%;
• Investment sales are expected stay robust with transaction numbers on pace with 2014 and average pricing up as demand continues to drive pricing; and
• Investors are expected to remain active as long-term interest rates remain low with attractive fixed rates still available.