Honolulu, Hawaii/USA

Honolulu’s office market has lost more than 200,000 square feet of occupied space so far this year due to the recession, pushing the vacancy rate past 10 percent for the first time in five years.

The two largest sub markets on Oahu — downtown Honolulu’s central business district and the Kakaako-Kapiolani-King corridor — lost a combined 82,238 square feet during the second quarter, accounting for more than two thirds of the 122,297 square feet of negative absorption for the quarter, according to a report released today by Colliers Monroe Friedlander.

There were no large vacancies of note, just multiple tenants who left behind small and medium-sized spaces.

The report noted that job growth is a direct indicator of the office market’s health and that Honolulu’s office job count fell by 4.4 percent between April 2008 and April of this year.

“The bulk of it is directly related to the recession,” said Mike Hamasu, consulting and research director for Colliers and author of the report. “The slowdown in the overall business environment, which is the combination of tourism, construction, real estate and finance positions.

“These are the industries that utilize office space so that’s why you see a downturn in office usage,” he said.

Another factor is that tenants who are renewing their leases are taking less space to cut down on their rents.

Rents, meanwhile, were fairly stable. The average full-service gross asking rent was $2.85 per square foot per month, just a penny higher than the year-end average rent from 2008.

The average base asking rent was $1.68 per square foot per month, just 2 cents less than the average at the end of 2008. Operating expenses averaged $1.17 per square foot per month during the first half of the year, up 2.6 percent over the year-end average for 2008.

The central business district’s vacancy rate rose to just under 11 percent during the quarter, up from 10.4 percent during the first quarter, while the Kapiolani district’s rate rose to 8 percent, up from 6.8 percent during the first quarter.

The Airport-Mapunapuna district had a vacancy rate 10.7 percent, up from 9.4 percent last quarter, according to the report.

The last time the islandwide rate was 10 percent was in 2004, Hamasu said.

The peak in the vacancy rate was in 1998 when the average was 13.7 percent. It went back up to that level in 2002, after Sept. 11 attacks slammed the tourism industry.

Waikiki, which has been hit by the drop in tourism, lost 9,400 square feet of space during the second quarter, pushing the vacancy rate to a record high of 18.4 percent, up from 13.8 percent during the first quarter.

Waikiki’s vacancy rate hasn’t been that high since 2002-2003, when the rate was 17 percent and 18 percent, Hamasu said.

He noted that the Class B and Class C markets accounted for the most vacancy last quarter, with 60,295 square feet and 53,096 square feet of negative absorption.

Many of the Class B buildings are in the Kapiolani corridor, as well as in downtown Honolulu and the suburban office markets such as Pearl City or Mililani, Hamasu said. The Class C buildings are mostly smaller, older buildings that lack amenities and are in need of upgrades.

During the economic boom, many businesses moved to those properties to save on rent.

“These are tenants that probably had intention to save on occupancy costs and now they’re suffering,” Hamasu said.

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 12,700 employees span the world in 294 offices in 61 countries. On a worldwide basis, Colliers manages 1.1 billion square feet, and has revenue of $US 1.6 billion.

Contact Information

For further information please contact Andrew D. Friedlander at 808-523-797 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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