Medical Office, Restaurant Locations Plentiful
The 2018 Economic Forecast with Dr. Michael Pakko and commercial real estate economist Brandon Svec was well attended, and by the reports I heard, it was well received. It was good information. The gist of the forecast was that commercial real estate is doing OK, that the new tax bill provides some support to the commercial real estate market, and that there are no strong headwinds to commercial real estate at this time. The presentation included great insights into job growth and economic activity in Arkansas and to commercial real estate activity in central Arkansas. The 2nd quarter lunch is planned for April 19. If you aren’t on the list and want to be, send me an email with CRE Lunch in the subject line and I’ll pass it along to get you added.
Very quickly, here are some updates on items mentioned previously. Ground has been broken on the Bank of The Ozarks campus at The Ranch. Judging from the size of the equipment and the number of them, someone is serious about moving some dirt. The earlier report of the building going in next to First Security seems to have paused at dirt moving. The land sale for the proposed Kum & Go at the corner of Chenal Parkway and Wellington Hills Road has finally closed. Expect wailing and gnashing of teeth to soon follow over the redevelopment of the former construction company building and yard.
In some newer happenings, several folks around town, powers that be mostly, have recently gotten a look at the site plan for the planned redevelopment of the former Sears at South University Avenue and Interstate 630. A new item I’ve heard is rumblings of an effort to organize a business improvement district along Rodney Parham at Interstate 430. I’m a fan of supporting efforts there to encourage investment in all businesses and properties in that area.
Previously we noted the closings of all the of Dixie Cafés. Joining that list includes Chili’s on Rodney Parham (relocating to West Markham), Macaroni Grill (was on West Markham), and Mimi’s Café (around the corner on Chenal). These recent closings join several other that closed a while back, including Famous Dave’s and Luby’s, among others. So, with all the restaurant space available it makes perfect sense to try to build more restaurants, right? Well, that’s part of the plan in Midtown at the former Sears site—sorry Max, there will be no Costco there—and, on at least three sites recently purchased out west. Those three sites include: i.) Chenal Park Centre in the 15200 block of Chenal Parkway, which has been clearing, grading and improving 5.16 acres purchased in Q3 of last year for $1,580,000, or about $7 psf before all the sitework expenses; ii.) This month Shoppes at Chenal paid $2,544,794 for 5.08 acres (~$11.50 psf) in the 17400 block of Chenal Parkway for the privilege of doing even more site work than Chenal Park Centre (ouch…); and iii.) Two lots just off the northwest corner of Chenal Parkway and Rahling Road (Lots 4C and 4D) totaling 4.86 acres sold in December for $3,442,000 (~$16.25 psf). The Rahling Road property gained approval from the Little Rock Planning Commission for a hotel in addition to a restaurant or two, and I don’t think they have a creek to relocate like the other two sales mentioned above. Still … more than $16 psf for undeveloped land? I hope that includes the seller doing some site work.
UAMS has been in the news recently with hundreds of job cuts. That’s important to readers of this column because medicine is a big driver of the area’s economy. Homeowners, grocery shoppers and goods buyers from all over the area are employed at UAMS, Arkansas Children’s Hospital, CHI St. Vincent, Baptist Health and Arkansas Heart Hospital. Employees and patients of all those facilities and the clinics and practices around the area in buildings like Midtown Medical, Doctors Building, Parkview Medical, Blandford Medical and many others support restaurants, services and vendors that employ hundreds more. These jobs are important to the economic health of Little Rock AND all the surrounding communities.
I had the opportunity to watch a CRE professional from another market review a custom report for medical office vacancy and absorption for the Little Rock market. He read through a hard copy, making margin notes on most pages, and came up shaking his head. He put it in a nutshell with a discussion that property owners trying to fill medical office suites are like people fishing in a big pond that has very few fish in it. The question he asked is, “Where do you get more fish?” Of course, the natural corollary to that question is to ask if such a big pond is needed. Is there more medical office space inventory in Little Rock than is needed? Has the tide changed such that absorption of medical office space is, and may continue to be, in Benton, Bryant
and especially Conway? This issue with UAMS and Baptist Health in Conway has broad implications for medical providers, and for commercial real estate owners. Another influence on the medical market stems from the single-tenant-net-lease market that was mentioned in this column last month. The demand for that product, the consolidation in medical industry segments such as urgent care and dentistry, and the patients’ insistence on convenience are some of the elements shifting demand away from multi-tenant buildings and shifting demand to these free-standing retail-type buildings. For example, are any of you buying or selling MedExpress or Aspen Dental properties?
In the you-don’t-know-what-you-don’t-know department, I swung and missed the ball relative to the commercial real estate information platform. Even though I had signed up for access to the Catylist website in 2015, I didn’t know that the company was poised to expand and offer service in Arkansas until the week after I had written last month’s column. At this writing, Catylist is signing up subscribers to a data platform of Arkansas commercial real estate AND as mentioned last month, CoStar is offering subscriptions in Central and Northwest Arkansas as two of the 380 U.S. markets that CoStar covers with research and reports.
Something that came up in the Economic Forecast, that I’ve heard CRE brokers talking about, and that appeared on the op-ed page of the Arkansas Democrat Gazette on Sunday, Jan. 28 in a guest piece by Frank Scott, Jr., was about the difference in job growth between Northwest Arkansas and Central Arkansas. (Side note, yes, I have been converted to calling the area Northwest Arkansas. That’s a different conversation for a different time.) Mr. Scott notes that 11 of 12 new jobs in Arkansas are in the northwest corner of the state. The charts at the Economic Forecast lunch clearly showed differences between the Northwest Arkansas data and the Central Arkansas data. Northeast Arkansas (Jonesboro MSA) shined pretty well in that data, also. And the conversation I’ve heard, similar to the observation above regarding stocking the pond with fish, is that without job growth the commercial real estate industry is playing musical chairs. AND without job growth, rents stay down to try to entice a business to move across town or across the street, all the while the property operating costs continue to rise. So, where does Central Arkansas find more fish? And who will lead the efforts? It’s time folks.
Tips and suggestions, well most of them anyway, are appreciated. Hope you found something interesting in the column this month. Check back again next month for the things that didn’t get included here this time and that pop up between now and then.