STAR-BULLETIN FILE
The office vacancy rate in downtown Honolulu has edged above the national average, to 15.3 percent vs. 14.6 percent for the nation.
Movin’ on out
As companies cut back,
office space opens up
Business closings and downsizings since 2001, particularly in the information and telecommunications businesses, have placed more than 420,000 square feet of downtown Honolulu office space on the market, a new research report says.
While that is producing some bargains for tenants seeking space, the deals are mostly for smaller spaces while larger areas are still in demand, said Grubb & Ellis /CBI Inc., the Honolulu commercial real estate firm that issued the report yesterday.
Other real estate companies said while it is true downsizings have put office space on the market, the Grubb & Ellis report is a bit gloomier than the current environment suggests.
Bargains are mostly for subleased space, where businesses that leased large spaces from building owners subsequently downsized and put some of their space on the market, said the report by Jeff Nasrallah, research services manager at Grubb & Ellis/CBI.
One result is space subleasing for an average 22 percent less than landlords are asking in lease prices, the report said. More downsizings are coming and the firm projects that the downtown vacancy level could rise above 17 percent by the end of this year. Currently, 15.3 percent of downtown office space is vacant, according to the report.
But Matthew Bittick, Grubb & Ellis' general manager, said many of the spaces are small and businesses looking for 15,000 square feet or more won't find easy pickings.
"The most competitive sublease spaces are under 10,000 square feet, mostly 3,000 to 6,000 square feet," Bittick said. As soon as you get to 10,000 square feet or larger the available space diminishes, he said.
Andrew Friedlander, chief executive and principal broker of competitor Colliers Monroe Friedlander, agreed that vacancies are on the rise, but he disagreed with the Grubb & Ellis projection of a central business district vacancy level passing 16 percent this year. "I don't believe that," Friedlander said.
He said a report his company did several months ago came to similar conclusions to those of Grubb & Ellis. "There's no news there; we've been basically saying that all along," Friedlander said.
Also disagreeing was Jamie Brown, a former Colliers Monroe Friedlander executive who now has his own firm, Hawaii Commercial Real Estate LLC.
He said he is optimistic that vacancies will start to fill up and that it is normal for some businesses to decline while others pick up at the same time.
"Change is what business is all about," Brown said. "There's two sides to the coin. There's tenants that go out of business. That's always been the case."
However, other businesses are being created all the time, he said. Brown said it is true there are no signs of big high-profile companies getting started or coming into the market, but he sees a lot of deals picking up smaller spaces.
Through 2002 and the first quarter of 2003, 420,075 square feet of central business district office space became available for lease. About 60 percent of that went into the sublease market, with 40 percent returning to the building owners, the report said.
The information-telecommunications sector vacated more than 113,000 square feet of that empty space, followed by Internet businesses leaving more than 64,000 square feet and other media-related businesses at 40,000 square feet.
Grubb & Ellis did not name businesses that closed or reduced their size but several such changes have made news.
In January, Verizon Wireless closed its Honolulu call center in the Pacific Guardian Center downtown, laying off 65 people and opening up some 20,000 square feet of space.
In October, Spirent Communications laid off 40 people in Kaimuki and moved that office into its headquarters in First Hawaiian Center. Spirent since decided it does not need all its space and is offering one floor of the First Hawaiian Center for sublease, some 20,000 square feet.
Jim Wayman, senior vice president of First Hawaiian Bank and manager of the bank's properties, said he doesn't think Spirent will have any trouble filling the space. "I am confident that they will fill that space up by the end of summer," Wayman said.
And he said discussing "vacancy" when you're talking about sublease space is a little misleading. As far as the building owner is concerned, the space is leased and only becomes a problem when the master tenant cannot pay the rent.
Spirent is paying the rent and as far as First Hawaiian is concerned the building is 95 percent full, he said.
Grubb & Ellis said that since 2001 there have been 32 corporate downsizings and nine company closings that have affected Oahu's market for office space.
Eight of the closings and 28 of the downsizings were in the downtown central business district, the company said.
