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Office market shuffle; occupancy rates slowly improve, but lease rates are still lagging.

Office Market Shuffle Occupancy Rates Slowly Improve, But Lease Rates Are Still Lagging

The overall strength of the office leasing market in Little Rock-North Little Rock increased modestly during the past year. The average occupancy rate reached 80.82 percent, according to information gathered in the 1990 Arkansas Business Office/Industrial Lease Guide.

The total net rentable space in the market grew to more than 8.9 million SF with 236 listings. This represents a 3.7 percent or nearly 390,000 SF increase over last year's figure. The growth was split between adding new projects and mending holes in our reporting network.

All four areas in the survey posted gains with the exception of the ever-growing suburban sector, which continued a two-year slide from 83.9 percent in 1988.

The average occupancy here, covering west Little Rock, southwest Little Rock and Maumelle, landed at 79.31 percent this year. The average lease rate in the suburban market fell to $10.11 per SF, down from $10.30 per SF in 1989.

Property managers and leasing agents aren't dancing around their desks, but they are enjoying a respite from the giveaways and gimmicks of recent years.

"I've been real busy this year, and I feel like I'm not having to give away as much," reports Linda Faulkner, VP for leasing at Flake & Co.

"The days of six months free rent are gone," remarks Allyce Twedt, property manager and leasing agent for Lewis and Associates. "Even though the market is flat, the gimmicks are gone."

Leasing rates are holding firm at best and dropping more often than not, except older properties or those with high occupancies. The overall averages is $9.52 per SF.

Musical chairs is still a popular game in the market, with tenants shopping for the best rates on comparable space.

"If they can upgrade their space and get a competitive rate, logic would typically dictate a move," points out Darren Newsum, director of commercial leasing with Danny Thomas Co.

A few expansions and new blood are sprinkled in to keep the market on its upward, albeit show, occupancy track. A sense of relief and a glint of optimism is apparent and would grow proportionately to a boost in the average per SF lease rate.

"I'm feeling a little surge of activity right now," states Dwight Blissard, president of Blissard Management.

The Comeback Struggle

Continues In Downtown

The occupancy rate in downtown Little Rock hit 80.8 percent in 1990, marking the first time in four years the average has risen into the 80s.

That's good news even though the return has been painfully slow, bumping up 1 percent or so every year since 1986. The bad news is that average lease rates downtown continue to face unfriendly supply and demand pressures.

Compared to last year, the cost of downtown space tumbled a few pennies from $9.18 per SF to $9.06 per SF. It's the second year rates have fallen when the figure stood at $9.78 in 1988.

The downtown market is still not settled, what with folks like Stephens Inc. buying the Rogers Building and its pending move there.

The relocation will soak up space in the company's new namesake building, but the investment banking firm will be vacating 90,000 SF in the process.

The deal should still help eat up some of the existing inventory in the overall market. On the down side, the pricing of Stephens' soon-to-be former quarters at Capitol and Main will help keep the competition keen.

In another acquisition, the Pulaski County Quorum Court is slated to buy the Union Life Building. This consolidation move will free up some unwelcome space in the Wallace Building although a scaled office and a few small tenants will land elsewhere Downtown.

The bankruptcy of Swink & Co. also dumped 18,000 SF in the Spring Plaza Building on the market. Worthen Bank & Trust, which foreclosed on bond daddy Jim Swink, is in the process of assuming the role of landlord for this property.

On a small upbeat note, the Arkansas Engineering Foundation eliminated the 920 W. 2nd Building from the Downtown playing field with its $260,000 purchase last year.

Midtown Vibrance

The midtown area of Little Rock once again registered the healthiest occupancy figures, climbing from 90 percent in 1989 to 91.8 percent this year.

However, the average lease rate in the area dropped from $9.88 per SF last year to $9.15 per SF in 1990. The decrease reflects the sharp competition among midtown office properties.

The occupancy rate was once again held back from posting an even more impressive figure largely because of two office buildings on the campus of Arkansas Children's Hospital. If the Medical Arts Building were ignored, the overall occupancy rate of the area would nudge up to 93.4 percent.

The Riverdale area maintained its stability while adding 6 percent of new net rentable space, thanks to Eagle Realty's 28,840-SF Providential Life Building.

Cantrell Valley Plaza, which didn't participate in the 1989 survey, accounts for the remaining "new" square footage in the midtown area of this year's lease guide. This property is still up for sale after OneBank foreclosed on developer B.G. Coney.

On the horizon, Bailey Corp. is eying the construction of a new 16,000-SF project that could hit the market by next year. The company is keeping the identity of the lead tenant for this Riverdale office building under wraps.

It will be interesting to see whether Bailey "steals" its tenant base from a competing property or lands someone new.

NLR Gains

The office leasing market in North Little Rock has firmed up slightly since last year as well. The occupancy rate improved from 81.5 percent to 84 percent compared to a year ago.

Corresponding with the increase, average lease rates in the area nudged downward from $10.01 per SF last year to $9.76 in 1990.

This year's survey reflects a decline of 36,000 SF in the overall net rentable space in the North Little Rock office market, but there is actually no change.

Three Maumelle projects that were considered part of the area last year are now listed with the rest of their compadres in the suburban market. Hence a corresponding increase in the suburban area. The properties that have migrated are Lake Point Center, Lakepoint Place and One Maumelle Center.

The addition of the Percy Machin Building, overlooked in last year's survey, deflects the impact of this alteration somewhat.

Whittling On Warehouses

1989 was our inaugural effort at tracking the industrial warehouse market in Little Rock-North Little Rock. Our list of properties increased from 29 to 41 in 1990 and will no doubt grow in coming months as we strive to fill in the gaps.

Of the nearly 2.4 million SF reported in our most recent outing, 48.2 percent is leased. The average lease rate runs about $2.98 per SF.

A direct comparison with last year's figures would prove haphazard at best and inaccurate at worst.

Acquisitions removed two properties and 48,900 SF of warehouse space from this year's list. CDI Corp. bought 6615 Woodson in a $270,000 deal, and Ellis Melton Co. purchased 5900 Patterson for $315,000.
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Title Annotation:Office/Industrial Lease Guide
Author:Waldon, George
Publication:Arkansas Business
Date:Sep 1, 1990
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