Honolulu, Hawaii/USA

The vacancy rate for Oahu’s industrial real estate sector rose to its highest level since 2001 this year, due in part to the delivery of three condominium projects that are leasing unsold space, according to a new report.

Industrial rents declined by 5.34 percent, after seven years of going up, to an average asking rent of $1.24 per square foot per month, down from a record high of $1.31 per square foot at the end of last year, according to the report by Colliers Monroe Friedlander.

The report forecasts that rents will continue to soften in 2009 as vacancy rates rise above 5 percent for the first time since the 1990s.

The addition of Kapolei Spectrum, Waipio Business Center and Kapolei Kai this year pushed the vacancy rate up to 4.36 percent, the highest it has been since the days following the Sept. 11 terrorist attacks in 2001, when the rate was 4.4 percent.

Because Oahu’s industrial market is comprised mostly of owner-user facilities, Colliers Monroe Friedlander counts any new vacant inventory that is put on the market for sale or lease, said Mike Hamasu, Colliers’ director of research and consulting and author of the report.

The addition of the new warehouse space helped account for approximately 529,396 square feet of negative absorption recorded in 2008, and helped to push the number of available listings for spaces smaller than 3,000 square feet to the highest level since the mid-1990s.

Hamasu noted that in analyzing the industrial market, the report notes that industrial sales and leasing track alongside the contracting and construction businesses, which account for about 30 percent of industrial space, and the wholesale distribution business, which accounts for 50 percent to 60 percent of industrial space.

“What we try to do is analyze those sectors of the economy to effectively measure the success of those industries,” he said.

The report noted that the construction industry has softened dramatically, and that the retail demand for warehouse space moves with the changes in retail sales.

That means that the current decline in the number of visitor arrivals and the slowdown in retail sales to both visitors and residents are likely to have an effect on the industrial market.

“We’re seeing the various components of the industrial sector being affected by the slowdown in the economy and as a result we’re seeing a softening in the rents and increase in the available space that’s coming to the marketplace,” Hamasu said.

He noted that a 4 percent vacancy rate is still very tight, and that Hawaii is not experiencing the double-digit vacancies seen in some other parts of the country.

“Here in Hawaii, we’re so used to tight market conditions, when you see vacancy rise, landlords start to become concerned by that,” Hamasu said.

The vacancy rate also is likely to be affected by ground rent renegotiations that are set to take place over the next four years as leases with large landlords such as HRPT, Kamehameha Schools and Queen Emma Land Co. begin to expire.

As for the regions of the island, the biggest change in the vacancy rate was in Waipio Gentry, which includes the newly built Waipio Business Center condominium, which recorded a 10.9 percent rate at year-end, down from 15.47 percent at midyear.

The vacancy rate in Iwilei rose to 8.49 percent, primarily because of the Weyerhaeuser building going on the market for sale.

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 10,092 employees span the world in 267 offices in 57 countries. On a worldwide basis, Colliers manages 672,945,918 square feet, and has revenue of $US 1,620,958,349.

Contact Information

For further information please contact Andrew D. Friedlander at 808.523.9797 or via email at andrew@colliershawaii.com or Mike Y. Hamasu at 808.523.9792 or via email at mike@colliershawaii.com.

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