Industrial vacancy rate is highest in a decade


POSTED: Friday, May 01, 2009

With several major Leeward-side parcels in foreclosure, Honolulu's industrial market has taken a hit from the recession.

The industrial vacancy rate jumped to 5.09 percent in the first quarter, according to the latest report from Colliers Monroe Friedlander, the highest since 1999, and 2 percentage points higher than the first quarter of last year.

Base average asking rents have dropped to $1.06, compared with $1.33 per square foot a month in the first quarter of last year.

Average operating rates are at $0.33 a square foot per month.

Slower leasing activity in the past two quarters resulted in rental-price reductions — as low as 90 cents a square foot per month for some units at Waipio Business Center, for instance, which previously asked for $1.60 a square foot per month.

Industrial sales activity posted solid annual growth rates for the last seven years but fell for the first time in 2008.

In prior years the rapid run-up in the real estate market and easy access to financing helped boost the industrial sector, said Mike Hamasu, Colliers research director, but now all that has shifted.

Industrial condo sales, which make up about a quarter of vacant inventory, have dropped due to the inability to secure financing.

“;Without the financing, you can't go forward on a transaction or a development,”; said Hamasu.

Honolulu's warehouse users — typically wholesalers, distributors and contractors — also have taken a hit in this economy, affecting industrial sales activity.

Several industrial properties in Kapolei, including the former Hawaii Raceway Park and Kapolei Spectrum Phase II, have gone into foreclosure or default, leaving the properties in the hands of lenders.

Mortgage holder iStar Financial is said to be in escrow with a buyer for the raceway park, at the intersection of Kalaeloa Boulevard and Malakole Street, for substantially lower than market price. This is likely to result in softening industrial land prices.

The new owner is expected to divide the land into 5- to 7-acre parcels and put them on the market.

Lenders have put Kapolei Spectrum Park Phase II, meanwhile, on the market for $52 million but might not get the asking price.

Another project, the Kapolei Pacific Center, which was to be built by Avalon Development Co. LLC, has been postponed until next year due to market conditions.