Businesses to pounce on new industrial space
New construction is not expected to give tenants much relief from rents
Construction of industrial space in Honolulu has picked up in response to market conditions -- the tightest in the nation -- that have pushed rents to historic highs, according to a report released yesterday by commercial real estate firm Colliers Monroe Friedlander.
Honolulu's industrial sector is a direct reflection of Hawaii's economy, which is experiencing strong growth in hospitality, retail, government/ military, construction and real estate, said Mike Hamasu, director of consulting at Colliers.
Honolulu's industrial vacancy rate -- now 1.86 percent, up slightly from 1.8 percent at the end of last year -- has been driving some businesses to such extremes as renting public storage space and bunker space.
"As vacancy rates have remained below 2 percent since year-end 2004, finding space for expansion or relocation has become an exercise that requires creativity, persistence and often a lot of luck," Hamasu said. Available listings have fallen by more than 50 percent since 2003.
As a result, industrial tenants are finding it more expensive to do business in Honolulu.
The average islandwide asking rent has risen 7 percent in the past six months to $1.07 per square foot per month, Hamasu said. Operating expenses also have jumped by 36 percent, from 22 to 30 cents a square foot per month, primarily due to increased property taxes, insurance and utility costs, he said.
Cost ratios finally have made it more feasible for industrial users to begin building their own storage facilities and for speculative developers to bring industrial-condominium projects to the market, Hamasu said.
During the past six months, properties in Pearl City/Aiea, Kalihi/Sand Island and Iwilei posted rental net gains of more than 20 percent. More than 50 percent of industrial inventory is renting for more than $1 per square foot per month, breaking a psychological price barrier for developers, he said.
An additional 80,000-square-feet of inventory is set for delivery this summer including the D. Otani Building in Kalihi, 94-422 Ukee St. in Gentry and the Kapolei Industrial Court, Hamasu said.
Another 600,000 to 900,000 square feet of industrial space should be available by next year, but it's not expected to bring much relief to tenants, he said.
"Over the near term, the industrial sector will continue to benefit from the thriving economy," Hamasu said. "Absorption should mirror new construction activity, and newly available industrial space should be leased at a fairly rapid pace."