LR's office, industrial vacancies up.

Although the vacancy rates for office space and industrial space increased during 1996 in the Little Rock area, the region still ranks among the stronger U.S. markets.

Vacant office space grew from 7 percent in 1995 to 8.7 percent last year, according to a report by the Society of Industrial and Office Realtors.

The growth in vacant industrial space was slighter, moving from 2.5 percent in 1995 to 3.8 percent in 1996. Vacant industrial space in Little Rock totaled 1.1 million SF out of a total inventory of 30.7 million SF.

That was good enough to position Little Rock among the 20 lowest vacancy markets for industrial space in the nation. The national average for vacant office space during 1996 was 11.6 percent, while the overall rate for industrial space was 7.1 percent.

"Construction is expected to increase by about 1-5 percent in 1997 for all property segments [in Little Rock]," says Gene Lewis Jr., president of Little Rock's Lewis Realty & Associates. "Sales prices are expected to remain steady."

Lease prices for two categories of industrial space is forecast to fall 15 percent. Absorption of warehouse/distribution space is expected to drop 1-5 percent as well.

Looking back at 1996, Lewis notes that occupancy remained very high, above 96 percent marketwide, despite several relocations to Memphis and Dallas. Slower net absorption resulted from the exodus of big firms such as General Electric Co., Baxter Hospital Supply and Kroger Co.

Little Rock's metropolitan area experienced a 2 percent growth in the civilian labor force over the past 12 months.

Demand has remained relatively steady, fueled mostly by expansions of existing industries such as Rank Video Services, Maybelline Co. and Affiliated Foods Southwest Inc. Babcock & Wilcox Co. sold its facility quickly to a local steel fabricator, Lexicon Inc.

Greater Little Rock Industrial Space

Inventory               Central City        Suburban
Combined

Total                      8,835,000      21,875,700
30,710,700
Vacant                       343,576         814,744
1,158,320
Vacancy Rates                   3.9%            3.7%
3.8%
Under Construction               n/a             n/a
n/a
Net Absorption               -70,000         325,506
255,506

Source: society of Industrial and Office Realtors of Washington,
D.C.

Vacancy rates for industrial space were 3.6 percent in 1994 and 4 percent in 1993. The 1995 vacancy rate of 2.5 percent was almost good enough to crack the top 10 list of lowest vacancy markets in the nation.

In 1995, the suburban Little Rock industrial market had 480,550 SF available in a total market of 21.2 million. Tied to this area's 1995 vacancy rate of 2.3 percent was a net absorption of 581,000 SF and 127,000 SF under construction.

With a tight supply, lease prices for warehouse/distribution, manufacturing and high-tech research and development space were all up 6-10 percent during 1995

In the central city market, the vacancy rate was only slightly higher at 3.1 percent. There were 273,576 SF available from a total of 8.8 million SF. Net absorption was 195,000 SF in this market segment.

Greater Little Rock Office Space

                       Class A     Class B
Inventory (SF)        Downtown    Suburban    Downtown    Suburban

Total                2,297,771   2,450,576   2,395,510   3,912,373
Vacant                 281,000     135,676     256,000     284,552
Vacancy Rate             12.2%        5.6%       10.7%        7.3%
Under Construction           0      68,000           0      21,600
Net Absorption          44,283     204,109     -97,027     -54,632

Source: Society of Industrial and Office Realtors of Washington,
D.C.

Figures during the 1990s reflect a general downward trend of available industrial space.

1996 Office Review

Health care was the most active demand sector for office space in 1996. The market still remained flat with increased vacancy rates in almost all market segments except class B space in downtown.

"At 11 million SF in inventory, Little Rock is less than half the size of the average U.S. office market," says Mark Bentley, partner in Little Rock's Irwin Bentley Rystrom Management Co. "It's 8.7 percent vacancy rate is well below the national average [11.6]."

Vacancy rates for office space in Little Rock were 7.9 percent in 1995 and 9.6 percent in 1994.

Vacant office space totaled 958,288 SF in 1996. For the year, construction was started on 89,600 SF, while 96,733 SF were absorbed.

Bentley, SIOR's reporter for the Little Rock office market, points out that for the first time in five years there was speculative office development both in and outside the downtown area.

This activity added 375,000 SF to the market and exceeded the 96,000 SF of net absorption for the year. It in turn depressed the class B office statistics. Prime space, however, performed well, especially in the suburbs.

The outlook for 1997 calls for absorption to increase 1-5 percent, vacancies to grow by 6-10 percent and construction to decline by 1-5 percent.

Little Rock is known to have one of the most inexpensive downtown office rents in the nation, according to the SIOR report. The economy is robust because of Little Rock's location and capital stature, which made it the economic, financial and distribution hub of Arkansas.

The local economy is supported by a strong government and medical employment base. With new construction in 1996, no further development is expected in 1997.

Net absorption is expected to rise 1-5 percent. Rental rates and sales prices are expected to remain the same in the coming year.

In 1995, 5.66 percent of class A office space in the market was vacant. Class B office space reflected a 7.92 percent vacancy rate.

The mortgage money supply was labeled tight, with overall sales prices of office properties up 1-5 percent. The mortgage money supply is described as moderate in the recent survey, with no change in sales prices.

The average per SF rental rate for space was $16.10 for class A suburban, $14.70 for class A in downtown, $9.40 for class B suburban and $9 for class B downtown.

The suburban Little Rock office market as a whole had a 6.6 percent vacancy rate during 1996, with 421,319 SF available for lease out of more than 6.3 million SF.

In the downtown Little Rock office market, the combined vacancy rate for class A and B space was 11.4 percent. About 537,000 SF were unoccupied out of a total survey of almost 4.7 million SF.

The West South Central region - which includes Texas, Louisiana, Oklahoma and Arkansas - had a 14.8 percent office vacancy rate in 1996. The 21 markets in the region tallied a 17.8 percent vacancy rate in 1995. The rebound was most noticeable in "Oil Patch" markets such as Oklahoma City, Austin, Houston and Dallas.

Net absorption of 16 million SF in the region accounted for nearly one-fifth of U.S. absorption and ranked the West South Central second among the eight regions surveyed.

On the national scene, construction activity jumped to 28.5 million SF, up from 19.4 million SF reported in 1995 and 14 million SF in 1994. This growth came on top of a 2.1 percentage point drop in the national vacancy rate in 1996.

The 11.6 percent vacancy rate in 1996marks the first time in more than a decade that the national rate has slipped out of the teens. SIOR surveyed 122 office property markets totaling 3.2 billion SF and 129 industrial property markets totaling 10 billion SF.

Lowest 1996 Office Vacancy Rates

                                Inventory    Vacancy
Market                           (MM SF)       (%)

Monroe, La.                         4.7         0.9
San Mateo, Calif.                  18.3         2.3
Gainesville, Fla.                   1.9         3.3
Harrisburg, Pa.                    33.4         3.5
Sioux City, Iowa                    1.2         3.7
Melbourne, Fla.                     2.3         5.0
Boise, Idaho                        9.1         5.0
San Jose, Calif.                   36.5         5.2
Salt Lake City                     11.6         5.2
Reno, Nevada                        3.7         5.2
Highest 1996 Office Vacancy Rates

                                Inventory    Vacancy
Market                           (MM SF)       (%)

Los Angeles-South Bay              29.5        26.3
New York-Westchester               25.3        23.8
Shreveport, La.                     3.7        23.2
New Haven, Conn.                   11.2        21.7
Los Angeles-
San Bernardino                      3.7        21.3
Los Angeles-San Gabriel            11.5        20.0
New Jersey-Southern                14.4        19.8
Syracuse, N.Y.                      9.2        19.6
Los Angeles-Central                20.0        18.8
Providence, R.I.                    8.6        18.6
Lowest 1996 Industrial Vacancy Rates

                                Inventory    Vacancy
Market                           (MM SF)       (%)

Montgomery, Ala.                    8.2        27.0
New York-Rockland
County                             12.0        25.0
Pittsburgh, Pa.                    31.4        17.2
Boston                             47.5        17.1
New York-Long Island              115.8        15.7
Savannah, Ga.                       4.3        15.0
Lansing, Mich.                      3.4        14.8
Wichita, Kan.                       5.9        14.8
Allentown, Pa.                     23.6        14.5
Jackson, Miss.                      4.7        14.3
Lowest 1996 Industrial Vacancy Rates

                                Inventory    Vacancy
Market                           (MM SF)       (%)

Nashville, Tenn.                  166.0         1.0
Chattanooga, Tenn.                 33.7         1.0
Des Moines, Iowa                   28.8         1.2
Harrisburg, Pa.                    93.0         1.9
Cincinnati                        189.3         2.0
Fargo, N.D.                        11.9         2.1
Raleigh, N.C.                      20.0         2.3
Louisville, Ky.                    26.7         2.4
Boca Raton, Fla.                    6.9         2.5
Sioux City, Iowa                    7.7         2.6

Source: Society of Industrial and Office Realtors of
Washington, D.C.