Demand Down, Rent Prices Down, New Buildings Going Up in Fayetteville

Construction projects underway in Fayetteville, Arkansas, will add nearly 1500 rental units in the near future. That’s a rather astonishing number for a city the size of Fayetteville.

Demand for apartments in NW Arkansas has already softened and that creates pressure to lower prices. The vacancy rate is just under 10% in Fayetteville. Rogers and Springdale have vacancy rates of 10%-15%, depending on the size of the apartment.

And the new units haven’t even come on board yet.

Consumers are understandably happy when prices drop but property owners have a tough time holding their heads above water when vacancy rates increase. Added pressure is coming from homeowners who decide to rent rather than sell their homes while they wait for the market to rebound.

So, at first glance, the situation seems contradictory. But, we need to remember several factors affecting NW Arkansas in general and Fayetteville in particular.

While most of the country is suffering through a recession, NW Arkansas continues to see new people move here. Job growth is positive here. As new people arrive and go to work, they rent apartments and buy homes. Gradually (though slower than in recent years) the excess inventory of homes is shrinking.

The other thing to remember is Fayetteville is home to the University of Arkansas with its thousands and thousands of students and faculty, all of whom need places to live. I haven’t seen any recent studies of the effect of “trickle down economics” from the university’s presence but believe me when I say it is huge by anyone’s standards.

Nevertheless, for potential investors, I don’t recommend purchasing for the University market right now. The conventional wisdom says that rental properties in university towns are a good investment.

But in addition to all of the new apartments being built, there is also another factor to consider. The U of A just built 2 new dormitories in the past few years, which are absorbing a lot of upper classmen who might normally want to live off campus. The result is that many of the normal rentals near the University stand vacant.

On the other hand, for parents who want to purchase a condo or other unit for their student son or daughter to live in for the next few years, it’s a great time to purchase. Prices are down and there are a lot of properties to choose from. By the time you want to sell, the situation will have probably changed.

For other towns in NW Arkansas, there is more of a "normal" rental market, geared toward families, young professionals, and others. In that segment of the market for investors, there are some phenomenal deals, especially on foreclosed multi-family dwellings.

Of course, I don’t have my crystal ball handy, but keep in mind that real estate is cyclical. It IS a great time to buy….

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