Despite uncertainty in the national market, Honolulu's demand for warehouse space remains strong and tenants are having a hard time finding the type of space they want, a new research report says. Honolulu sees tightening
in warehouse spaceBy Russ Lynch
rlynch@starbulletin.comOn Oahu, more than 174,000 square feet of warehouse space was occupied by new tenants in 2002, reducing the islandwide warehouse-industrial vacancy rate to 3.6 percent from a year-earlier 4.4 percent, said Mike Hamasu, consulting and research director at the commercial real estate firm Colliers Monroe Friedlander.
His new "Industrial Market Report" said increased construction activity, strong home sales and a rebounding retail market have contributed to tightened market conditions for Oahu's warehouse sector.
"During 2002, tenants encountered increased difficulty in securing space and faced increased competition for attractive, well-located industrial properties," Hamasu said.
Rent for Oahu industrial space (which includes warehouses and manufacturing plants) dropped from a 2000 average of 72 cents per square foot per month to 69 cents in 2001 and an average of 67 cents through last year, Hamasu's figures show. Hamasu said the Oahu average asking rate for industrial property went from 71 cents a square foot per month at mid-year to 69 cents at year-end.
But those figures are skewed by older properties lying unrented on the market for two years or more, he said. "As the better quality spaces are leased, what remains are older functionally obsolete properties that are more difficult to lease," he said. The older properties, on the market for a long time, drag down the average asking rent, but what is actually being paid - for the newer, smaller and more desirable buildings - is on the rise, he said.
In Kalihi, for example, the proximity to the harbor, the downtown business district and the airport is leading to businesses acquiring old office and residential buildings and fixing them up into new warehouse facilities. That is pushing up property values and the average asking rent in Kalihi for warehouse space has risen to 93 cents a month per square foot from 61 cents in 1997, Hamasu said.
"This rise in industrial rents, the shortage of space and the low interest rate environment are prompting many to consider purchasing property for their businesses," his report said.
Another Hawaii real estate expert, Joe Haas, managing director of CB Richard Ellis Hawaii, also sees the warehouse market on Oahu as a tight one if older and less desirable properties are not counted.
His firm estimates the industrial-space vacancy rate on Oahu at 3.2 percent, a major reduction from around 10 percent in 1998.
Like Hamasu, Haas views a lot of the warehouse space that is available as obsolete and he told a National Association of Industrial and Office Properties meeting Thursday that nice, small warehouse spots are hard to find, leading to higher rents.
That creates development opportunities and a number of developers can be expected to start new warehouse complexes close to downtown Honolulu, he said.
He urged businesses that need warehouse space to go out and build it now, while the market is tight. He said warehouse rental rates will continue to rise significantly this year.