Retail vacancy rates remain steady

Vacancy rates for retail space on Oahu have remained stable so far this year despite the opening of Nordstrom, although the pace of rent increases appears to be slowing.

OAHU RETAIL RENTS Average low asking rent $2.93 per square foot per month Average high asking rent $3.83 psf / month Average operating expense $1.02 psf / monoth Oahu vacancy rate 3.35 percent Source: Colliers Monroe Friedlander

Colliers Monroe Friedlander's Oahu Mid-Year 2008 Retail Market Report put the vacancy rate at 3.35 percent, nearly even with year-end 2007's 3.31 percent figure.

Asking rents have gone up 2 percent over the past year to about $3.38 per square foot per month, Colliers found. However, recent trends indicate that after three years of double-digit increases the pace of rental rate growth is slowing, said Mike Hamasu, the consulting and research director for Colliers, who composed the midyear report.

The opening of the Nordstrom store at Ala Moana Center brought more than 300,000 square feet of retail space to the market, fully leased. In addition, a 107,000-square-foot redevelopment of the former JCPenney space at Pearlridge Uptown II is now 88 percent leased.

"At this point, the retail market still appears to be healthy, with vacancy rates holding steady as new occupancy growth is boosted by delivery of new retail projects," Hamasu said. "However, discussions among retailers are increasingly becoming centered on the prospects of the potential downturn in the economy."

Resort retailers are bracing for the impact of the closure of Aloha and ATA airlines, as well as the merger of other major carriers that service the Hawaii market, Hamasu said.

Average asking rents in Waikiki dropped to $10.83 per square foot per month in midyear from the record $11.34 per square foot that was recorded at the end of 2007. Average asking rents in the Leeward region ranged from $3.27 to $4.23 per square foot.

Island retailers are also concerned about the impact of the non-resort market slowdown, rising cost of goods, increasing shipping prices and the continued high inflation -- all of which affect their margins, Hamasu said. Additionally, as home appreciation slows, homeowners are less likely to take cash out of their homes to finance major purchases.

However, the drop in the U.S. dollar against foreign currencies has sparked international interest in Hawaii, Hamasu said. The Canadian, Korean, Japanese and Chinese markets are all eyeing Hawaii with renewed interest, he said.

West Oahu is undergoing a construction boom. The Pearl City Gateway, a planned 105,000 square foot retail center, has also broken ground with completion set for 2009. Leihano Village, Kapolei's live-work-play community, is projected to open in February 2010. Leasing is also ongoing at Kapolei Village Center, which is slated to open in May 2010.

However, the cooling economy, could result in delays or cancellations of some commercial projects, Hamasu said.

"There is a great likelihood that a large percentage of these (West Oahu) commercial projects will not be built or will be placed on hold due to softening market conditions, stiff competition for tenants and difficulties with obtaining financing," he said.