Office vacancies increase again
Rents have also risen with higher-class markets exceeding $3 per square foot
Oahu's office vacancy rate has risen for the third quarter in a row as more businesses consolidated operations in yet another sign of an economic slowdown, according to a report released today.
The office vacancy rate in this year's first quarter was 7.71 percent, up from 7.27 percent at the end of last year, according to Colliers Monroe Friedlander Inc.
The market gained 40,971 square feet of vacant office space in the quarter, and a total of more than 150,000 square feet in the past nine months. Every area except for Waikiki saw vacant space increase.
Significant business closures in the mortgage market and consolidations have boosted sublease space to more than 118,000 square feet -- a nearly 20 percent increase over year-end 2007, according to the report.
The report points to consolidations among large firms such as NCL Corp., Duty Free Shoppers and Kaiser Permanente Hawaii, "reflecting a change in business philosophy and possibly optimism."
In addition, substantial increases in suburban market sublease space more than doubled over the previous quarter.
The report doesn't reflect the recent shutdowns of Aloha Airlines and ATA Airlines, which accounted for substantial office space in Honolulu.
"None of that sublease space has hit the market, because the closures have just occurred," said Mike Hamasu, Colliers director of consulting & research. "In all likelihood, the slowdown will be much more prevalent in the subsequent quarter."
But despite increased vacancy rates, rents continue to climb for tenants who face high construction and relocation costs.
Rents have risen an average $2.12 per square foot per month to $2.79 -- a 31 percent spike over the past five years. In the higher-class office markets, rents now exceed $3 per square foot per month.
"The market is slowing and as a result, businesses target bottom lines and if they have to cut jobs or reduce overhead that's what they're going to do," Hamasu said. "The real telling point is when growth in rents start to slow."
Rent growth likely will flatten or stall by year's end, he said.