Industrial space tight

High demand and static
inventory is driving up rents

Scarce supply in Oahu's industrial real estate market will continue to drive up rents, according to research by CB Richard Ellis Hawaii.

The company attributes the squeeze to a nearly decade-long standstill in new construction for this market.

Fourth quarter numbers show a tight market with a 3.3 percent vacancy rate, but rents have not yet reached the point where it's feasible for a developer to build speculative properties, said Jeffrey W. Hall, senior director of research for CBRE Hawaii.

Vacancy was flat in 2003, it didn't move more than 10,000 square feet during year, Hall said. Small bay warehouses near town remained the tightest market and showed the most significant rent increases. However, older less-functional buildings that had lagged in the vacancy recovery are now leasing as tenants have fewer options, he said.

Market conditions have prompted rents to climb to an overall market average of 95 cents per square foot, he said, adding land values have also increased.

"Hawaii's economic recovery has kept demand for space moderate, with new construction limited to owner/user space," Hall said. "Rental rates will continue to rise, as there is little new speculative construction on the horizon."

However, increasing rents and lower land values in West Oahu could spur new development in the next 12 to 24 months, he said.

As more people and businesses move into West Oahu, it's going to become more attractive for industrial operations to locate there, Hall said.

And as the economy strengthens, he said some businesses may decide to over-build their own properties and rent out some of the space to other businesses.

"We'll see slow, steady growth out West," he said. "The old mill area in Waipahu and Kenai Harbor near Barber's Point are particularly hot markets right now."


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