Oahu's industrial rents are rising
Oahu's industrial vacancy rate inched up to 2.3 percent at the end of this year, according to a report released yesterday by Colliers Monroe Friedlander.
While the rate is higher than the 1.8 percent at the end of 2005, Oahu still remains one of the tightest industrial markets in the nation.
The average asking base rent continued to rise to $1.10 per square foot per month compared to $1.07 in the middle of the year, and 99 cents per square foot at the end of last year.
Vacancy rate: 2.3 percent
Average asking base rent: $1.10 per square foot a month.
Source: Colliers Monroe Friedlander
New construction helped push the vacancy rate higher, although most of it is of industrial condominiums targeting owner-users rather than tenants. Demand for warehouses on the island continued to outstrip supply.
"Despite this dramatic increase in rents and a continued strong tenant demand, developers haven't entered this market with huge amounts of speculative construction," the report said. "Two primary factors have dampened their enthusiasm: rapidly rising land prices and the jump in construction costs."
Whereas a warehouse in Kapolei could have been built for about $85 per square foot in 2004, including land and construction costs, it would cost at least $140 per square foot today.
With construction cost increases outpacing rental rate increases, speculative construction will remain curtailed.
For Christine Camp Friedman, president of the Avalon Development Co., it was quicker to turn around and put 13 fee-simple industrial lots in Waipahu on the market than to build them out.
The lots at Sugar Mill Center at Mill Town are on the market for between $52 to $57 per square foot, and Friedman says every lot has an interested buyer, backed up by a waiting list.
"We would have done the industrial buildout, but it would have taken longer," Friedman said. "It was easier for us to say, 'Just buy it.' We've had a lot of interest because of the fee simple nature of our property and the location."
Colliers predicts that the 110,000-square-foot Kapolei Spectrum industrial condo development will be sold out by mid-2007.
This means that the spikes in rents are likely to continue. Every industrial park on Oahu has an average asking rent at $1 per square foot and higher, the report said.
Peter Savio, president of Hawaiian Island Homes Ltd., recently bought the six-story Kakaako Commerce Center at 875 Waimanu St. to offer as warehouse and condominium units.
He will be making a minimal investment of at least $1 million into the property, and will offer the units to current users at about $250 per square foot in February.
"There is definitely a tightening of the market, and it's going to continue to tighten," said Savio. "I think demand is going to remain strong. The problem is the cost of building and land is great, so to try to build a new warehouse on a speculative nature becomes more difficult because you have to have higher rents."
Savio, however, said he remains confident that the local economy will outperform the national economy. He is looking for other industrial properties to convert to condos.
"Our basics are very solid and I think we're going to have a pretty good run for another five to 10 years," he said.
Hamasu of Colliers Monroe Friedlander predicted vacancy rates would remain between 2 percent and 2.5 percent at the end of next year.