insideyournwa.com

Building Slows, Demand Falls

By Kim Souza
The Morning News

The pace of building in Northwest Arkansas slowed last year. Way down from record-setting 2005.

The five area cities — Bentonville, Fayetteville, Rogers, Siloam Springs and Springdale — issued 3,726 permits in 2006 valued at $773.74 million.

In 2005, they issued almost 40 percent more at $1.3 billion.

Commercial developers put up more space in Fayetteville, while Rogers and Bentonville already had plenty to rent.

Homebuilders tempered their pace, and, in some cases, started building to meet the demand for lower-end houses.

Rogers saw the steepest drop in the value of what was built in 2006.

The city issued 116 new commercial building permits with a value of $112.25 million compared to a record 142 permits valued at $277.86 million the year before.

The initial building phase of Pinnacle Hills Promenade began in 2005, giving the city a boost in value that year. The Promenade’s completion added more than 1 million square feet of commercial space to Rogers in the third quarter of 2006. The other cities, combined, accounted for 600,000 square feet that quarter.

Bentonville and Springdale also saw sharp commercial building declines last year.

Dixie Development owner Ben Israel said lease rates, particularly in Springdale, have not been able to keep up with escalating land prices, which has hampered its commercial development.

Israel’s company will soon begin building Westside Village, a multiuse commercial space located at Sunset Avenue and Jones Road in Springdale.

“We have already sold off two lots in the area to banks and are about to close another lot sale with a fast-food chain,” Israel said. “There will be office space and roughly 35,000 square feet of retail space when the project is finished.”

Upward Swing

Fayetteville bucked the downward trend with new commercial values increasing 55 percent last year.

“With the slowing we saw in residential building and the fact that Fayetteville only has roughly 20 percent of the total available office space in Northwest Arkansas, it is not surprising that Fayetteville ramped up commercial construction during the year,” said local economist Kathy Deck, director of the Center of Economic Research and Development at the University of Arkansas.

Dixie Development has several commercial projects under way in Fayetteville involving more than 100,000 square feet of retail and office space coming online in the first quarter of this year, Israel said.

Bentonville has more than 40 percent of the available office space in the two-county area while Rogers has about 30 percent, Deck said. Israel said Bentonville and Rogers have too much space available and yet developers are continuing to build.

Deck said after two years of steady building, Bentonville’s commercial vacancy rates peaked last January and started downward, declining to 17.8 percent during the third quarter. During that same period, Rogers saw its commercial vacancy rate rise to 20.3 percent, a high for the year.

Deck said the completion of the Pinnacle Promenade gave the city a great deal of empty office space all at one time. While the retail space opened with tenants, some of the office space above the stores did not, she said.

The entire area continues to add small retail centers near newer housing developments at a steady pace. During the last two years, banks have also staked a claim in these areas. Deck said small strip centers will continue to spring up to serve the sprawling residential neighborhoods.

Smaller Homes

Residential building in Northwest Arkansas also dropped. The overall number of new, single-family home permits declined in all the cities.

The oversupply in higher-end housing and lack of lower-income housing in the region has prompted some builders to reduce the size and prices of new homes to open in 2007.

Springdale witnessed a move toward building smaller homes in 2006, said Mike Chamlee, chief building inspector for the city. More than 54 percent of the new-home permits issued in Springdale last year were valued at $150,000 or less.

Rogers city officials recently recognized the need for more low-end housing and allowed the rezoning of 26 lots for developer Bill Burckart of Burckart Construction.

“The project is called Veteran’s Park and it was an infill piece of land that was originally zoned for duplexes adjacent to Veteran’s Park. Working with the city, we have made adjustments for lot size and came up with a way to offer very affordable housing inside the city limits,” Burckart said.

Burckart plans to start moving dirt by the end of the month. The final price tag on a home will average $110,000, 76 percent less than the November average home price in Benton County as reported by the Arkansas Realtors Association.

Last year, 56 percent of the new single family residential permits issued in Bentonville were valued at $150,000 or less compared to 28 percent in 2005.

“We saw residential building projects decline in scale last year as developers sought to offer new homes priced at an affordable range for most people. After some slowing in the third and fourth quarters of 2006 we are now seeing more houses sell and feel the market is catching up,” said Lance Blasi, chief building inspector for Bentonville.

Residential new home building slowed to a snail’s pace in Siloam Springs in the summer months of 2006. Building resumed in September with the development of Deerlodge and the Woodlands subdivisions where home values range from $80,000 to $90,000.