Office growth trend stalls
Despite lower occupancy, office rents climbing
STORY SUMMARY »
For the first time since 2002, more space was vacated than filled in Honolulu's office market.
Office tenants moved out of 9,600 square feet of office space on Oahu, according to Colliers Monroe Friedlander's year-end 2007 market report.
Most of this was due to the closure of mortgage companies in the central business district. Offices in the airport, Mapunapuna and Waikiki areas also recorded net losses in occupied space.
Yet the average asking rents continued to rise to $2.76 per square foot per month compared to $2.59 a year ago.
Operating expenses for buildings are going up across Oahu, while landlords are granting fewer concessions. Full-service rents also are expected to keep rising another 6 to 8 percent by the end of 2008.
2007 Oahu office space rental market
» Net absorption: -9,578 sq. ft.
» Vacancy rate: 7.27%
Average full-service asking rents
» Islandwide: $2.76 per sq.ft./mo.
» Class A: $3.03 psf/mo.
» Class B: $3.00 psf/mo.
» Class C: $2.45 psf/mo.
Source: Colliers Monroe Friedlander
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Honolulu's office market recorded a negative absorption -- meaning less office space was leased out than filled -- for the first time since 2002.
At the same time, asking rents have still continued to rise, according to Colliers Monroe Friedlander's year-end 2007 office market report, which placed the average full-service asking rents on Oahu at $2.76 per square foot per month.
"It's basically a reversal of our trendline after you've had positive absorption for four solid years," said Mike Hamasu, Colliers' research director. "Most of it occurred in the last half of 2007."
A total of 9,578 square feet was lost in all -- a significant portion of it resulting from mortgage offices that vacated their premises in the central business district. Offices in the airport and Mapunapuna area, as well as Waikiki, also lost occupancy.
In the first half of 2007, by comparison, 112,000 square feet of office space was newly occupied.
Class A office buildings in downtown Honolulu that generated the highest losses in occupied space include the First Hawaiian Center, One South King and Davies Pacific Center, according to the Colliers report.
But the reality of the market shift has yet to sink in with landowners, who continue to ask for more in rents while granting fewer concessions.
Average full-service asking rents rose 6.6 percent over the past year to $2.76 per square foot per month. And for the first time since the end of the Japanese bubble period in 1993, the average asking rents for class A and B spaces rose above $3 per square foot per month.
Higher building operating expenses may have been a significant contributing factor -- jumping 9.4 percent to an average of $1.05 per square foot per month over the past year.
Landlord concessions, which include tenant improvement allowances, and free rent as incentive, also have declined.
Oahu's islandwide office vacancy rate trended slightly upward to 7.2 percent at year-end 2007 compared to 7.0 percent at year-end 2006. At midyear 2007, the vacancy rate fell to a 15-year low of 6.5 percent.
Certainly, 2008 will be a year "faced with heightened concern over the economy," given the growing uncertainty in the financial market, wavering tourism numbers, and flagging consumer confidence.
However, Colliers believes there still will be fairly healthy demand for office space in the second quarter of this year, which will push vacancy rates down mid-year.
By year-end 2008, Colliers predicts the office vacancy rate will fluctuate between 6.75 percent and 8 percent, while full-service gross rents will increase by 6 to 8 percent.