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NEW OFFICE CONSTRUCTION IS A RARITY these days in the greater Little Rock market, and many tenants are positioned to negotiate better deals in a market dotted with competitive options.
Renovating older buildings for use by state agencies is helping absorb some vacant space in the Little Rock office market. That bit of good news on the landlord front is overshadowed by anticipation that a large block of empty space will be on the market in the coming months.
New York's Verizon Communications Inc. is expected to downsize its office footprint as it assimilates the acquired Alltel Corp. operations.
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"The big question is what is going to happen to the Verizon office campus, and that's a matter of when and how much space comes on the market," said Mark Bentley, principal at the Little Rock office of Colliers International.
Real estate observers expect one or two office buildings on the former Alltel campus to hit the market for lease or sale. Estimates range from 230,000 SF to 425,000 SF.
"For our market, that's a lot of space," Bentley said. "Nobody knows what is going to happen. But something will happen."
The coming influx of Alltel space will add to the inventory of available SF and likely slow office absorption in the market.
The estimated occupancy of the central Arkansas office market is 89.7 percent, according to data gathered by Xceligent Inc. of Independence, Mo. The data was gathered this spring and included more than 400 properties with more than 18.6 million SF.
If 425,000 SF of Alltel space were available for lease today, that occupancy figure would drop to 85.5 percent.
"It's going to be a tough year but not dramatic," Bentley said. "Much of the activity in the market involves tenants looking for a little less space and better terms. It's not brutal yet, but it's certainly a tenant's market.
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"Generally, the office market will be very flat, if not retreat a little more. I think we will continue to see vacancies Our market won't soften rise slightly. significantly like other markets in the nation because we're a historically stable market."
'WAIT AND SEE'
A wait-and-see attitude looms over the local office market, according to Johnny Kincaid, owner of Little Rock's Kincaid Development Partners, an office development firm with an emphasis on health care-related projects.
"There is an apprehension about doing anything because of the state of the economy," Kincaid said. "Many of the physicians have suffered economic hardship, and it's more of a holding pattern of let's wait and see.
"That transcends into the general office market as well, as people wait on a sign of things to come."
While much of the private sector remains on the sidelines, state government is moving forward with new office projects in the market.
The former Dillard's headquarters at 900 W. Capitol Ave. is the most notable of two office renovation developments put in motion by the state.
"The only other big thing is the redevelopment of the Department of Workforce Services," said Anne Laidlaw, director of the Arkansas Building Authority. "That is a lease project, ready later in May."
The 57,000-SF retail building that once housed Haverty's at 5401 S. University Ave. is undergoing a makeover as office space.
This property and the long-vacant Dillard's building were owned by the Union Rescue Mission before redevelopment deals were struck with the new owners for state office space.
The state signed a lease-purchase agreement for the former Dillard's HQ, which will become quarters for the state library, Arkansas Development Finance Authority, Arkansas Science & Technology Authority and the Arkansas Economic Development Commission.
The AEDC will occupy the fourth floor, and the state library will be on the first and second floors. Both will be moving from the Capitol grounds.
The ADFA and ASTA will share the third floor. The two agencies will relocate from leased space at 423 Main St., owned by Little Rock businessman Warren Stephens.
Stephens representatives tested the waters about developing a 120,000-SF office building for the state on the west side of the 400 block of Main Street.
This stretch of empty retail buildings that included the former homes of Woolworth's, Montgomery Ward and Kempner's has gone the way of the wrecking ball. However, no definitive plans for the property are on the drawing board with the state.
"There's nothing really on the slate for that as far as the state goes," Laidlaw said. "There's not a proposal on the table or anything."
A would-be project that circulated with state officials encompassed a $24 million, five- or six-story building with on-site parking. The deal was posed as a competitor to the Dillard's property in hopes of retaining the ADFA and ASTA.
The Dillard's building will be transformed into a LEED-certified, energy-efficient project by Ed Massman and Chuck Edwards of Dallas. The green factor was a big selling point to the state and will be in any new office projects pitched to the state.
"Stephens is talking about making a proposal for the future," Laidlaw said. "It will have to be green."
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