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Walk through Chinatown and the signs are everywhere. For rent. Space available. For sale. For lease.
There are plenty to read around
District by district
downtown: For rent. Space available.
But there's also disagreement
about what they really sayBy Russ Lynch
rlynch@starbulletin.comThere are more symbolic signs, too, empty storefronts, some advertising the space but many showing off nothing but smudged glass and a cleaned-out shop.
Many retailers in Chinatown have given up and gone. Wander in the direction of Waikiki and you pass through what real estate brokers call the "no man's land" between Chinatown and the Bishop-King financial district.
Again there are empty storefronts and even one or two empty small buildings.
And there are a plenitude of tales about businesses, perhaps already struggling but hit with a killing blow on Sept. 11, that have abandoned high-class office space in the central business district.
Despite outward appearances, there are differences of opinion on the health of urban Honolulu's commercial real estate. Look closer, the more optimistic say, inside the buildings and on the higher floors and you'll find a much brighter picture -- and fewer empty offices. But others point out that the vacancy rate in office buildings is high and climbing.
To longtime local commercial real estate executive Andy Friedlander, chief executive and principal broker of Colliers Monroe Friedlander Inc., there is no question that Chinatown storefronts are at a historically high vacancy level now and there are retail vacancies downtown.
But to get a true picture, Friedlander said, you have to go into the office buildings a little more uptown, ride the elevators and look at what's happening on the upper floors.
The picture isn't nearly as gloomy, he said. Oahu retail businesses are chasing their customers into the suburbs, he said, and that helps explain the Chinatown vacancies.
"If the business was there, there would be more tenants," he said. But Friedlander said seeing empty stores doesn't mean all business is bad.
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"I also believe that some good things are happening downtown," he said. There are arts and cultural events and the overall office vacancy level really isn't bad, given the economic downturn and the fact that in the 1990s a whole lot of new office space came into being.First Hawaiian Tower, now called 1132 Bishop St., was one example. Other new high-rises include First Hawaiian Center and, before that, Alii Place, the City Bank building and Harbor Court.
State statistics show some of the effect over the past 10 years. In 1992, the downtown office vacancy level was 10 percent. In 1995, with some new buildings open, it reached 16.4 percent and it has been mostly declining since, except for the 2001 increase, but has not returned to levels of a decade or more ago.
Estimates late last year by local real estate researchers show that while today's downtown office vacancy rate is in the 12 percent to 13 percent-plus range, that may not be bad compared to office-market crashes in many parts of the mainland and the late-1990s experience of some Honolulu buildings.
A study by Colliers International shows that the national downtown office space vacancy rate grew by 1.3 percentage points from Sept. 30 to Dec. 31, from 11 percent to 12.3 percent, not so different from Honolulu's. However, some places are faring much worse. Dallas, Texas, for example, was running at a 26.9 percent downtown office vacancy rate at the end of December, the highest vacancy rate in the country.
When you look at empty storefront windows, you don't see what is happening above street level where the offices are, said Jamie Brown, Colliers Monroe Friedlander senior vice president for its office services group.
Life is better there and the vacancies are not so pronounced, he said. Downtown office space "hasn't been so dramatically affected" by the tourism decline since Sept. 11 and, even more importantly, by the collapse of high-technology companies that hit some areas of the mainland hard, he said.
But Matthew Birtick, managing director of the Honolulu office of Grubb & Ellis/CBI Inc., disagrees. Some of the positive spin is coming from real estate businesses that represent landlords. His firm, which doesn't, is a bit more realistic, he said.
For starters, Grubb & Ellis has come out with its report for the first quarter of 2002, the first firm to do so, and the picture clearly changed slightly for the worse since the final quarter of 2001, he said.
Oahu as a whole had an office vacancy level of 13.2 percent in the first quarter, up from 11.8 percent a year earlier. His survey showed a 13.5 percent vacancy in the downtown business district, the same as the final quarter of 2001. The highest vacancy, 13.9 percent, was in the Kapiolani business district.
Vacancies downtown are increasing and will keep on doing so, Birtick said.
"I represent two tenants that, in the first quarter of next year, are going to downsize by 30,000 square feet," combined, he said.
That is a lot of space and moves that have already taken place or are about to will result in the figures looking worse for 2002 than were foreseen in late 2001, Birtick said.
In the first quarter of this year, some federal government offices moved out of the 24th floor of the Pacific Tower of Bishop Square to relocate in the Federal Building. That opened 16,000 square feet of space, Grubb & Ellis said.
"Vacancy rates at the Topa Financial Center (formerly Amfac) were battered during the quarter as three large tenants vacated four full floors, which more than doubled the buildings' vacancy rates from 7.1 percent to 15.8 percent," according to the Grubb & Ellis research report.
The Rush Moore Craven law firm vacated two floors in the East Tower and downsized by 10,000 square feet into smaller quarters in the Pacific Guardian Center. American Hawaii Cruises went out of business and left vacant a floor in the East Tower. A company called Earth Tech also moved out, opening up a full floor.
But there were businesses that simply moved and, while downsizing, still occupy downtown space.
"There are vacancies, but I'm not sure it's a disaster," said Friedlander of Colliers Monroe Friedlander.
Colliers Monroe Friedlander showed the central business district, basically all of downtown Honolulu, with a late-2001 office vacancy rate of just over 12 percent.
During the last quarter of 2001, 75,000 more square feet was vacated than was newly filled in the downtown area, the company said.
The fourth-quarter report from Grubb & Ellis showed a central business district vacancy level of 13.6 percent, with 35,000 square feet opening up.
CB Richard Ellis showed a fourth-quarter vacancy level downtown of 13.5 percent, with the amount of space being vacated exceeding the newly leased space by 71,000 square feet.
The companies have different estimates because they monitor different buildings. In general, they report on what they know from the properties they know. All of the major research reports cover a broad range of buildings but they do differ because of their specific connections.
But Grubb & Ellis, not related to CB Richard Ellis, is the only firm to come out with a first-quarter 2002 report, showing another 10,000 square feet opening up in the first quarter, although its vacancy level estimate was 13.5 percent for the area.
The firm considered the Honolulu office market "poor" during the latest quarter. Nearly half of Oahu's total vacancy increase was in the downtown central business district, it said.
Overall Oahu vacancy levels are on the way up this year, and will head past the 14 percent mark, said Frances Okazaki, principal broker at CB Richard Ellis.
That can be good news for businesses renting or looking to relocate.
"What we've seen, of course, is that rental rates have not gone up. They are pretty much the same as last year. Really, when you talk about vacancy you're looking at certain buildings" that show more than others, she said.
Steve Sofos, head of Sofos Realty Corp., is one of the negative participants in the market.
"The overall commercial real estate market is in the tank," he said.
He expects the Honolulu commercial vacancy rate to approach 20 percent by the end of the year.
"Every one of your office buildings downtown is running at 80 percent occupancy, or maybe a bit more," he said.
Companies are downsizing and there have been layoffs. One example is Honolulu Publishing Co.'s departure from the historic Honolulu Specie Bank building after the business was sold, opening up 11,000 square feet of space, Sofos said.
To keep tenants, he said, landlords are holding rates steady and increasing incentives.
Tenants that were paying high rents in lower-rated buildings can now move up in class to a better-quality, better-recognized building at the same rental expense, Sofos said.
People in two- or three-story buildings can decide, "I'm going to move to a higher building," he said.
Sofos is skeptical about the gung-ho attitude of some in the business. He is considerably less rosy, he said.
"Everybody believes there is all this growth coming," he said.
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1st quarter Oahu office space
How different island districts shape up so far this year:
District Total square feet Vacant sq. ft. % vacant % vacant in '01 Change Airport 1,914,229 251,789 13.2 16.9 -3.7 Downtown 6,644,480 896,103 13.5 10.8 2.7 East Oahu 382,352 27,076 7.1 11.1 -4 Kapiolani 2,974,521 413,780 13.9 11.5 2.4 Leeward 389,902 20,878 5.4 4.6 0.8 Waikiki 918,052 151,754 16.5 18.2 -1.7 Windward 371,396 30,216 8.1 8.6 0.5 Total 13,594,932 1,791,596 13.2 11.8 1.4
Source: Grubb & Ellis Inc./CBI Inc, Honolulu
