What’s Happening
May 6-12, 2024
By Jeff Yates
Let’s talk about downtown office space. Post-COVID there’s lots of talk about companies asking employees to return to the office.
I don’t know about you, from my perspective there’s more peak-time traffic than there was two years ago. October of last year kicked off discussion and input on a new Downtown Little Rock Master Plan. With that there has been increased talk about downtown office space. The announcement that Arkansas Attorney General Tim Griffin is relocating his offices to the newly named Bob R. Brooks, Jr. Justice Building, f/k/a Boyle Building brought fresh focus to Main Street in Little Rock and the reuse, adaptive or otherwise, of long-empty buildings in downtown Little Rock.
Reports get published from time to time about vacancy levels and so forth. Headlines and stories get generated from pressreleases about the reports. What I often wonder about reports, any reports, is what is the data source. In today’s internet age, there are many, many sources for data of all kinds. And with artificial intelligence, one can feed some data to the computer and get a narrative summary. Regardless of the source and the narrator, how accurate is the base data? That data, piece by piece, is the cornerstone of the analytics and reports that follow.
This is a commercial real estate column, not a data analytics treatise. So, we’re going to skim the surface, not get off into the weeds of things like standard deviations. I’ll stick to what I know a little about.
I know a little about office buildings in Little Rock, including downtown. Among other things, I had the privilege of doing some work for Little Rock commercial real estate legend Dickson Flake in reviewing downtown sites for the Little Rock Technology Park. What was evident then, and is still true now, is that getting complete and accurate data on downtown buildings is challenging. As an example, because it is arguably the best resource to start with, let’s look at CoStar.
Someone asked me a couple of weeks ago what the downtown vacancy was. I started with CoStar. CoStar’s reporting area for Downtown extends south to Roosevelt Road and south of I-630 and west of Chester it continues west to University Ave. That area yielded 1,383 properties with data available for 1,210 of them to be included in the reports. However, for purposes of the question asked, that area is too large. So, I narrowed the area to be west of I-30 to the railroad tracks behind the State Capitol, and from I-630 north to the Arkansas River. That search area showed 488 properties with reporting data from 436 properties.
This area is not an exact match to the Downtown Little Rock Master Plan area. It is materially the same relative to office space though.
Keep in mind that the information available is generally limited to public information such as the Pulaski County Assessor’s records and the information reported by the responsible party for each building. That party may be the property owner. However, more likely the information that is getting reported is coming from the real estate agent hired to market and/or manage the building.
That group of 424 buildings reported an aggregate floor area of just over 11,100,000 square feet with a total of more than 1,800,000 square feet of vacant space. Absent the rounding, the reported vacancy rate is ~14.5%. Simple enough right? No.
If it were that simple there wouldn’t be enough here to make a whole column. Those 424 buildings include properties that are owned by the Federal, State, County, and City governments. And while integral to the community fabric, they will not be available to the market and by my argument are not part of the available inventory. Further, of the properties that are or could be available – there’s known undercounting, known double counting, and shadow space that is not reflected in the reporting.
Chances are that if you read this column, you know what I’m talking about with all those things. For those that don’t, or may not be sure about how I’m using the terms, let me elaborate.
With undercounting, I’m referencing space known to be available yet is not reported in the data set. An example is the Donaghey Building. Now, a year ago I might have agreed that the Donaghey Building, the (then known as) Boyle Building, and the M.M. Cohn Building could be excluded from the inventory as they had been vacant for so long and required such costly renovations as to be unfeasible. The Bob R. Brooks, Jr. Justice Building project proved me wrong. Double counting refers to counting the same occupant in the two different buildings. The Attorney General’s office again is a good example here. The Tower Building is not yet reporting the AG’s offices as vacancies or available space even though the reporting at their new building reflects the space there as leased. And shadow space is space that is known to be leased and available, yet is not reported in the data set. Reasons for not reporting vary from property to property. It might be available for sublease and not reported. Or maybe there is some other reason.
Back to the data set. If we control to buildings that are 5,000 square feet or larger, the inventory drops to 292 properties.
Those excluded include residences long ago converted to office use, bank branches, and other small buildings that have very little vacancy if any at all. And the number drops to 151 properties when the set is limited to office use only, excluding buildings that showed up in the set that are primarily hospitality, flex, etc. Doing that brings the total inventory of the set to a little under seven million square feet with reported vacancy and space available for sublease totaling a little over 1.6 million square feet. The reported vacancy rate of this group of buildings climbs up to a little over 21%. That’s a substantial difference.
However, this is before any efforts to reconcile the undercounting, double counting, and shadow space. Raising theminimum size for this sample to 10,000 square feet brings the data set to 84 properties that more closely resemble a list of downtown office buildings. And that list of properties totals just under 6.3 million square feet. Making some preliminary adjustments for spaces that are known to be available yet are unreported, without getting off into the weeds, reveals an available area of ~1.6 million square feet and a vacancy rate of almost 26%.
Now, for fun, and because this is where most attention is paid to what’s vacant and what’s not, let’s trim the data set down to the largest two dozen downtown buildings. The smallest weighs in at just over 56,000 square feet. Most of the vacancy, reported and known unreported, is in this group. The total inventory of the group is a little over 4.7 million square feet and the total available area is just a smidge under 1.5 million square feet. The vacancy rate on that is almost 32%.
So, I’ll pose the question to you valued reader. What is the downtown vacancy rate? And I’ll ask another question. What changes would bring you to work in offices in downtown? I invite you to take those answers to https://downtownlittlerock.engage.sasaki.com/#share and share your thoughts. The study is much bigger than the question of working downtown. Who is working downtown though is a key component of Little Rock’s future.
Hope you found something interesting. Check back again next month to read more about what’s happening in Little Rock commercial real estate. If you have questions or news, or some interesting commercial real estate new or events to share, you can reach me at jyates@flakecompany.com.
