space in demand
Building supplies for the
booming construction industry
are filling local warehouses
The market for Oahu industrial properties remains tight in contrast to soft conditions on the national level.
"Already we have probably the lowest industrial vacancy rate in the country," said Mike Hamasu, director of consulting research for the commercial real estate firm, Colliers Monroe Friedlander.
"There is no new warehouse space and whatever is there tends to be old and obsolete. So with the tremendous shortage of space, rents are spiking now," he said.
Industrial rents have jumped 19 percent in six months, according to Hamasu. Landlords have been able to dictate lease terms, reduce concessions and raise asking rents.
Much of the tightness relates to the construction and residential real estate markets and the boom in private and public building projects. At year-end 2002, nearly $4.3 billion in public and private construction contracts had been awarded, Hamasu said. In the past year, the number of construction and warehousing positions on Oahu increased by 2,200 jobs for construction and 1,100 jobs for warehousing.
The booming residential real estate market has spurred an increase in spending on such items as appliances, furniture and other household goods. All those items require warehouse space.
At Schuler Homes Hawaii, Vice President Mary Flood said the company is affected by shrinking warehouse space, but indirectly.
"A couple of years ago we switched to the method of having our subcontractors store materials and provide them to us as needed," she said. But Flood said there are sometimes delays.
"We're delivering as many as 50 homes a month so every time we deliver we still need to have carpeting and all the appliances come in. Sometimes there are delays because the contractor doesn't have enough space to store them or they're still in a container," she said.
Over the near term, Hamasu predicts industrial rents will continue to rise while vacancy rates, which have fallen to 2.59 percent, the lowest in a decade, will continue to sink.
The most desirable areas, close to downtown such as Kalihi, Waikiki and the airport are fetching top rental dollars for warehouse space.
It's a different story in Honolulu's office market. Vacancy rates increased from 13.62 percent at year-end 2002 to 13.75 percent currently. As a result, the Honolulu office market has its highest vacancy level in more than a decade. Hamasu said rental rates have stayed flat but he is hearing anecdotally that more office property landlords are offering concessions. More office space came into the market and that also contributed to flat rental rates, Hamasu said.
"What might have prevented a slight recovery in the past six months was the fact that about 70,000 square feet of sublease space was added to the market which prevented us from posting any growth," he said.
Still, even though the office market is lagging compared to the forecast for job growth, Hamasu predicts upward movement beginning next year.
"Although the office market has lagged compared to the forecast, if there is job growth as economists predict it won't show up in the office market for another six or nine months. So we're looking at 2004 before companies start to lease additional space," he said.