Honolulu's commercial real estate market is ranked the best in the country by Moody's Investors Service.

Moody’s bullish
on isle property

Honolulu named as the agency's
top commercial real estate market

Office market

Honolulu is one of two markets rated "green," the highest rating, by Moody's Investors Service. The other is Riverside, Calif. Comments by Moody's:

>> Honolulu's score improved to 69 points, from 65 last quarter, on a scale of 1 to 100.
>> The Honolulu vacancy rate, at 13.8 percent, is below the national average and likely to improve.

Honolulu is the best commercial real estate market in the country, according to Moody's Investors Service's quarterly study of U.S. markets.

The study looks out on a one-year horizon, according to Moody's spokeswoman Lisa Tibbitts.

"This is what the supply and demand will be. In other words, this is the well-being of the market as we see it for approximately the next year," she said.

The study looked at the industrial, office, retail or shopping center, and multi-family housing sectors. Hotels were calculated separately in the report.

Markets are scored on a scale of 0, or weak, to 100, or strong, and are described as red, yellow or green.

Included in the top commercial real estate markets in the country for this period and the last quarter of 2002 were Honolulu, followed by Los Angeles; Riverside, Calif.; Oakland Calif.; Long Island, NY; New York City; and Northern New Jersey. The worst markets included Stamford, Conn.; Denver, Colo.; Albuquerque, N.M.; and Dallas.

Honolulu's composite score for all markets was 80 in the first quarter of 2003, placing it in the green category. The average composite U.S. score for commercial real estate was 59, the yellow category.

Of all Honolulu commercial real estate market sectors, the office market continues to be the weakest, with a score of 69.

Andres Albano, vice president at commercial real estate firm CB Richard Ellis, said he's not surprised to see the favorable rating.

"Overall, with what's happening with multi-family housing, the fact that hotels are trading and we have little warehouse space, it creates an impression we are busy, you can see it," Albano said. "People feel good, plus investors from the mainland are looking at us."

Only the office sector continues to be weak, due to an exodus of tech firms and the residual effects of the Iraq war, he said.

"You'll find in most sectors it's good news," Albano said. "The only one that is soft is office space, again because we haven't built anything for a long time, there has been a lot of consolidations and there are a lot of vacancies. No one is building office space because the value of the existing assets is still less than replacement cost."

On the other hand, the industrial market is ripe for construction of new warehouse space, he said.

"While you wouldn't build a new hotel or office, and even a shopping center may be difficult, you sure would take a look at building small bay warehouses close to town," he said.

The announcement that the Damon Estate plans to sell a number of its industrial properties, primarily in Mapunapuna and Sand Island, has also created excitement and is likely to bring in outside buyers, Albano said.

"That will free things up because if a major land owner picks it up there will be opportunities. It also adds to the supply and could ultimately have a major impact on the market," he said.

Hotels are also in good shape, mostly because there has been no major construction. Some hotels have been converted to timeshare, thereby removing them from the pool of available inventory.

Those hotels going up for sale are now more likely to be priced to sell due to poor visitor counts, Albano said.

"When that happens, outsiders look at our market more favorably. Even if nothing has moved, the environment is such that investors are willing to take another look at Hawaii," he said.

Likewise, the demand for multi-family housing, given Oahu's hot residential real estate market, should be no surprise, Albano said.


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