Downtown
on upswing

For the first time at least
this year, more office space
is being leased

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By Russ Lynch
rlynch@starbulletin.com

Empty downtown office space has begun to attract tenants, according to a new research report.

For the first time at least this year, the Honolulu central business district filled leased office space faster than it was emptied, according the third-quarter office-space report from Grubb & Ellis/CBI Inc.

It wasn't a small shift, either, according to Grubb & Ellis figures. The difference between move-ins and move-outs was more than 51,000 square feet. The downtown district includes about 6.6 million square feet of office space.

Overall, however, downtown maintains a higher vacancy rate than it did a year ago. But the environment has improved from last quarter, when 14 percent of space was vacant.

Real estate executives say leasing agents have to be on their toes and ready to make deals if they want to get their share, and that is helping to hold down rents.

"I think it's a very competitive time for landlords," said Hugh Damon, who recently returned to Hawaii from the mainland to become vice president of Grubb & Ellis/CBI.

"The landlords know that if you're an elephant looking for space that they're going to be competing with each other," Damon said.

Some of the action is in subleased space, he said, where a number of major office tenants have large blocks of space they no longer need but have years yet to go on the master lease. That alone creates opportunity for change, Damon said.

While most of the third-quarter action was in downtown Honolulu, Waikiki also improved, after being hurt by business closings and downsizing since the Sept. 11 attacks.

Waikiki's net gain was small, however, with only a little more than 6,800 more square feet newly leased than vacated, and some of that came at the expense of other areas.

For example, NTA Hawaii, a local subsidiary of Nippon Travel Agency, leased 9,000 square feet in the Waikiki Business Plaza and will move there in November, vacating space at 711 Kapiolani Blvd.

There have been major changes along Kapiolani. The state government leased 14,000 square feet in the Pacific Guardian building at 1440 Kapiolani.

Ram Paging, now called Arch Wireless, moved out of some 11,000 square feet at 1221 Kapiolani.

But it is the heart of the Honolulu financial district that is seeing most of the action, and it hasn't been bad for tenants as landlords battle for their business.

Steve Metter, managing partner of the group that bought the Pioneer Plaza building a little over a year ago, said being able to compete effectively has helped fill the building.

"When we bought the building two weeks after Sept. 11 (2001), the building had effective occupancy of around 72 percent. We're projecting, by the second quarter of next year, 93 percent or better," said Metter, whose partnership includes MW Group and other local entities. "Since we bought the building we have either leased or renewed 113,000 square feet."

A couple upcoming deals should add 40,000 square feet by the end of the year, Metter said. The building has 280,600 square feet of leasable space.

Tenants like the way the owners have redesigned all the lobbies, they like the presence of the Plaza Club upstairs and they particularly like being able to deal directly with local owners, he said.

It helps that Pioneer Plaza installed a high-speed, broadband communications system that tenants can easily tap into without having to spend thousands for their own service, Metter said.

Also helping downtown are the moves of Spirent Communications (formerly AdTech) into 26,000 square feet at the First Hawaiian Center and American Savings Bank's lease of 16,000 square feet in the Pacific Tower at Bishop Square for its executive offices.

After all the changes, however, the total Oahu office-space vacancy rate rose to 14 percent in the third quarter, from 12.8 percent a year earlier, keeping the business competitive, according to the Grubb & Ellis report.

"The outlook for the next six months does not look promising for landlords," the report said. There are layoffs, such as 60 people leaving Pihana Pacific and another 40 from Spirent Communications.

Several leases for large blocks of office space expire soon and Grubb & Ellis said renewals are not expected for about 50,000 square feet of that space.