The Honolulu central business district is among the places on Oahu that saw office vacancy rates improve slightly, according to a new research report.
Oahu offices
slowly fill space
Honolulu's sluggish office market is slowly recovering as vacancies continue to decline and rents gradually rise, according to a new research report.
The overall Oahu office market posted a 13.2 percent vacancy rate at mid-year, down from 14 percent vacancy in mid-year 2003, and is likely to get better, gradually falling around the more desired 10 percent range by 2006, according to a report by Jeff Nasrallah, research services manager of Grubb & Ellis/CBI Inc.
While vacancy rates also improved in several Oahu submarkets, including the airport, the Honolulu central business district, Kapiolani and Waikiki, office buildings located in the East Oahu, Leeward and Windward submarkets posted higher vacancy rates.
Although vacancy rates improved in Oahu's central business district and in Waikiki, both submarkets posted vacancy rates above 14 percent, and still have far to go, Nasrallah said. The report's data also was skewed because it no longer includes certain office space.
A large negative 32,537 square feet of net absorption in the central business district was the result of company operations being moved to the mainland as well as financial hardships, Nasrallah said.
While military housing contractor Actus Lend Lease expanded and posted a 16,000-square-foot gain in Oahu's central business district, a number of buildings in that submarket lost tenants, including the 1132 Bishop St. building, American Savings Tower, Melim Building, Haseko Center, Pacific Guardian Center, Davies Pacific Center and the Topa Financial Center, he said.
Sprint had planned on subleasing its former call center space at 1132 Bishop St, but the new tenant recently pulled out due to financial troubles, leaving a 19,000-square-foot vacancy, Nasrallah said.
Digital Island closed its offices, creating an additional 10,000-square-foot vacancy in the 1132 Bishop St. building, he said. Downsizing from Ernst and Young LLP and Pacific LightNet also contributed to vacancies in the American Savings Tower and the Pacific Guardian Center, respectively, he said.
Oahu's overall office market posted 11,000 square feet of negative absorption, but it is still better positioned than it was during the early 1990s when a deluge of new construction and sales of office buildings caused vacancy rates to rise, Nasrallah said.
"The negative absorption looks bad, but when you look at the whole picture for metro Oahu, the outlook is positive," he said.
And since no new office buildings are planned, supply and demand for office space should remain relatively steady, Nasrallah said.
Although the asking rents in the central business district will remain flat, average asking rents will gradually increase in most other submarkets, he said.
As for this year, asking rents won't change much, if at all, and any increases will likely be because of the higher cost of operating business, not because of space demands, he said.
