Commercial real estate to soften after banner year
Hawaii's commercial real estate market will remain strong in 2006 but soften from the watershed year of 2005, real estate and banking executives predicted yesterday at an annual symposium of the National Association of Industrial & Office Properties.
"We won't have the same kind of experiences that we had in 2005 in 2006 but there will be no significant negatives," said Don Horner, president and chief executive of First Hawaiian Bank and the symposium's keynote speaker.
Insulating the state from a market correction, Horner said, will be some of the same factors that made 2005 a banner year: strong consumer confidence, economically sound behavior and strong local job base.
The economy is good, people are employed and they are spending money, Horner said. First Hawaiian Bank saw retail credit transactions grow 8 percent last year and there was little debt delinquency, he said.
Credit card delinquencies for First Hawaiian totaled 1.4 percent, significantly lower than the 4 percent national average, Horner said.
Meanwhile, notwithstanding surging residential prices, home buyers are pumping equity into the market, he said.
"Consumers are confident, they have capacity, and the banks have money to lend," Horner said. "The consumer remains spendy and we don't see that dropping."
On the commercial side, Horner said, companies are making long-term investments for cash flow, and not simply trying to make a quick buck with speculative bets on the market.
"The quality of borrowers over the last four to five years has been strong," he said.
Hawaii's banks in 2005 saw their best growth in three decades, with liquidity increasing by $1.8 billion, Horner said.
Strength in the state's tourism industry also has resulted in new markets, such as the creation of condominium hotels, industrial condominiums and assisted-living properties.
In the last five years, about 4,800 hotel rooms, representing 10 percent of all rooms, have been converted to condominium units. The biggest players in this new market are Brian Anderson, who has bought and resold 1,000 rooms in the last five years, and Peter Savio, who has leased or resold 700 rooms.
Most recently, though, signs have emerged that the hotel market is back and the condotel market could be softening, said F. Kevin Aucello, senior vice president at commercial real estate firm CB Richard Ellis. Dramatic increases in hotel room revenue have increased returns.
Steve Metter, chief executive of MW Group Ltd., is bullish on the self-storage market. The company now has four facilities built or in development, and has the goal to develop a total of eight by 2008.
Metter said that the market remains strong, particularly for his company, which secured real estate for lower prices than would-be competitors that are now trying to enter the market.
Despite the continued bullish outlook, the executives concurred about some overarching risks, primarily the lack of housing for workers.
The problem, Metter said, is that it makes little economic sense to build apartments on Oahu, given the costs of development and the rental prices that apartments can command.
And the lack of housing -- combined with problems such as lackluster schools -- could hamper momentum as skilled workers become hard to recruit and retain, Horner said.
"You don't solve a 2 percent unemployment rate by recruiting people here who can't buy a home or educate their children," he said.