office market seen
A real estate executiveBy Jerry Tune
predicts higher rents and lower
vacancy rates for downtown
The long-suffering downtown Honolulu office market will be much tighter in the next two years, predicts one market watcher, who sees vacancy rates falling to 5.4 percent by 2001.
Joseph T. Haas, senior associate at CB Richard Ellis, also says that monthly rent rates will increase from the current $2- to $2.50-a-square-foot range up to the $3.25-to-$4 range.
The prediction, which Haas was to present today at a commercial real estate industry meeting, goes against conventional wisdom that the local market will continue to suffer because of Hawaii's stagnant economy.
Haas, who has followed the office market since 1981, is more optimistic. He said yesterday that unless construction of new office buildings starts soon, Honolulu will run out of downtown office space in four or five years.
He predicts that the average office rate will rise to $3 per square foot when vacancy rates hit about 8 percent next year.
"We've absorbed 440,000 square feet in the last three year and 5 percent of the vacancy is gone," Haas said. "I think we have the same absorption in the next three years."
Haas acknowledged that "a lot of people disagree with me" but many of these people are not "street brokers" any more.
Where will the new office tenants come from in a stale economy? "That's what everyone is asking," Haas said. "They asked the same question 10 years ago. Nobody knows the answer to that (for certain)."
But Haas said the office space absorption in the past three years came from high technology, medical and communications businesses and these three segments are the most likely to fill the remaining office space.
Andrew Friedlander, chief executive at Colliers Monroe Friedlander Inc., disagrees with Haas.
"I think that Mr. Haas has a different pair of binoculars," Friedlander said. "In my opinion, we need to have job growth in the business community to get absorption of office space. At the moment we're still experiencing significant job loss with very few companies in Hawaii having any expansion at all."
Friedlander predicts that the medical/health care industry will be flat; high technology will see only a small amount of growth; and there will be a fallout in the communications industry. He does see office space getting tighter but is not optimistic on absorption of all classes of office space.
Haas said downtown vacancy rates dropped from 18.8 percent in 1996 to 15.2 percent and 13.9 percent the following two years. Haas predicts that the vacancy rate will drop to 11.3 percent this year, followed by 8.4 percent and 5.4 percent in 2000 and 20001, respectively. His prediction is based on several factors:
The last Honolulu office building to be built was the First Hawaiian Center. It opened in 1996 and no new buildings are being planned through 2001.
In 1998, three downtown Class A office buildings were offered for sale with two sold and a third expected to close in 1999. Alii Place received 11 offers; First Hawaiian Tower received 34 offers; and Harbor Court received 11 offers. A total of 56 offers on three buildings shows that the market is recovering, Haas said.
The Honolulu office market is cyclical, moving every nine years from a shortage of space to an over-built situation. In 1981 there was a shortage; 1983, high vacancy rate; 1991, a shortage; and in 1993, a high vacancy rate. Following this pattern, Haas said that by 2001 there should be a low vacancy rate because no new buildings are planned.