Honolulu, Hawaii/USA

Oahu's industrial market posted a negative absorption rate for the first time in nearly six years in 2007 as rents soared and the vacancy rate nudged upward, according to a new report.

Industrial rents on Oahu almost doubled between 2001 and 2007, according to the year-end industrial market report released this week by Colliers Monroe Friedlander.

The average industrial asking rent on Oahu rose to a record $1.31 per square foot per month at the end of 2007, up from $1.10 last year, a 19 percent increase.

Since 2001, rent has gone up 90 percent, to a point where nearly every industrial park on the island has an asking rent of more than $1.24 per square foot per month, the report said. In fact, most new leases today fall between $1 and $1.50 per square foot per month, the report said.

Average operating costs rose to 31 cents per square foot in 2007, a 41 percent increase over 2001, when the average cost was 22 cents.

There was 269,197 square feet less space occupied last year. In contrast, there was 452,041 more square feet in 2006.

The change in absorption -- the change in occupancy between two periods of time -- was more of a statistical change than a trend, said Mike Hamasu, consulting and research director at Colliers Monroe Friedlander and author of the report.

The large figure was attributed to industrial condominiums at Kapolei Spectrum Business Park hitting the lease market, and the addition of some 250,000 square feet of vacant space in the Sand Island area caused by the closing of retailer Kilgo's in May.

The Kilgo's leasehold property, which is on a ground lease from HRPT Properties Trust, was recently sold to an undisclosed industrial user.

"It's not any dramatic change in the economy or a drop in the level of demand, it's just that construction deliveries are occurring and that's why you have an increase in vacant inventory and ultimately an increase in the vacancy rate," Hamasu said.

The number of new industrial condominiums for lease has boosted the vacancy rate to 3 percent, but a severe shortage of for-lease listings remains, the report said. Most new warehouse construction will be limited to owner-users or condominiums because of the high land prices and construction costs, the report said.

'Two different markets'
"I basically think it's two different markets, one where condos are on the market for sale for owner-users looking to stabilize occupancy costs," Hamasu said. "In the market for leased space, the addition of industrial condos is not going to help you much."

For 2008, rents are forecast to continue to grow, although at a slower pace, while the vacancy rate is expected to fluctuate between 2.5 percent and 4 percent over the next two years

But it will continue to be a volatile year with fluctuations in available space and slowdowns in other industries.

"Overall, 2008 will be probably the transition year," Hamasu said, citing an increase in inventory of industrial condos, a slowing national economy, a slowing Japanese economy and a slowdown in residential construction.

"If all those industries are slowing or in decline, what you have is an impact on the warehouse and the distribution marketplace, which is resulting in slower or lower demand this year and maybe additional space coming online," he said.

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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