Isle experts see continued slide in commercial real estate sales

Causes include the credit crunch and financial woes in outlook for 2008

Hawaii's commercial real estate sales volume could fall by more than 20 percent this year, according to a new assessment of potential impacts here from mainland financial woes.

Mike Hamasu, consulting & research director for Colliers Monroe Friedlander Inc., projects that commercial transactions will drop to some $2.4 billion this year.

Not all local analysts agree, but even the most positive foresee a market that is barely flat compared to last year.

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Commercial real estate sales in Hawaii are forecast to plummet at least 20 percent this year, as fallout from the mainland credit crunch leads businesses to rein in investments and anticipated deals fall through, according to a Colliers Monroe Friedlander Inc. analyst.

Commercial transactions, which fell 17.8 percent to $3 billion in 2007 compared to the previous year, are expected to drop to some $2.4 billion this year, according to the latest report being released today by the Honolulu-based brokerage firm.

And at year-end 2007, overall commercial sales were down 29.3 percent compared to the record $4.3 billion in 2005.

"The caution ... is you know there's increased downside risk, so of course you need to be more cautious with investments going forward," said Mike Hamasu, Colliers consulting & research director.

Besides the credit crunch, the financial woes that plague the 2008 outlook include Hawaii's vulnerability to an economic downturn and recessionary concerns as consumer confidence, job creation, retail sales and home construction spirals, according to the report.

Buyers of large institutional products such as hotels, office buildings and shopping centers -- typically the properties that appeal to institutional investors interested in spending more than $50 million -- are having a harder time securing financing, resulting in those properties being taken off the market, Hamasu said.

Sales in the first half of 2007 totaled more than $1.6 billion here, a record sales pace for commercial transactions. But the market rapidly fell apart following the collapse of the subprime lending market and concerns over the U.S. economy, the report said.

Steve Sofos, president and chief executive officer of Sofos Realty Corp., also predicts that 2008 commercial sales will be down -- as much as 30 percent to 40 percent.

"The problem is there just hasn't been that much quality properties out there," he said. "It's hard to borrow money right now. The banks are being very stingy on lending, their controls are very tight."

Still, Hamasu noted that Hawaii's commercial real estate market recorded about $850 million in sales volume in 2001, so the projected annual sales volume for this year is still three times higher than in the previous decade, he added.

However, Joseph Haas, senior managing director at CB Richard Ellis, doesn't see a similar fallout in investment sales this year.

"Hawaii is leading the country -- we're the only major market that has the least amount of delinquencies on mortgage payments and foreclosures," he said. "It's taking longer to get deals closed, but I'm not seeing a significant slowdown."

People are being more cautious, but in the worse-case scenario, the market will end up being flat and close to last year's performance, which was a record year for CBRE's investment properties and overall sales, Haas said.