Rising economy carries
an increase in rent
Asking rates for office
and retail space are
increasing, a report says
Rental rates for Oahu's retail and office space are continuing to rise along with the Hawaii economy, according to new reports on commercial real estate.
A strong retail market has prompted landlords to increase their asking rental rates, said Mike Hamasu, research consultant for Colliers Monroe Friedlander.
Asking rents for retail space have risen 7.7 percent to $2.53 a square foot per month from $2.35 at the end of 2003, Hamasu reported in a year-end retail report.
"It's like everything else; when demand goes up, the costs go up," said retail analyst Stephany Sofos. "The landlords know we are enjoying a robust economy and more retailers are coming into the market so they are kicking up the rents."
The tenants most likely to pay higher rent are those whose businesses are in growing communities where more traffic is anticipated, Hamasu said.
That's a fact of business that Brad Wong, owner of Rainbow Photo Video, knows all too well.
The arrival of big-box retailers Wal-Mart and Sam's Club in Honolulu's urban core resulted in higher rents for his small Keeaumoku Street business and other nearby retailers, he said.
"When my rent went up $800 a month in June, I had to ask myself if I was willing to take the risk and stay in business," Wong said, adding he has changed his business strategy to try to generate more revenue.
Economic factors such as residential home sales, strong personal income growth and improved consumer confidence have boosted Oahu's retail market and filled about 228,000 square feet of space during the past year, Hamasu said.
Strong demand reduced Oahu's retail vacancy rate to 5.8 percent this month, down from 8.5 percent in November 2003, he said.
Solid leasing activity at Ala Moana Center filled 100,000 square feet of retail space during the past year, Hamasu said.
CB Richard Ellis Hawaii's Office MarketView for the third quarter also shows strong leasing of office space in Honolulu with an availability rate of 12.2 percent, a slight decrease from the second quarter.
"It has reached the point where asking net rents for both Class A & B properties have increased across the board," said Jeffrey Hall, senior director of research at CBRE Hawaii.
Asking rental rates for office space rose about 8 cents to $2.29 a square foot per month during the past year, Hall said.
"This is the first time asking rental rates have been this high since 1995," Hall said, adding that office rents, which peaked in the early 1990s, have started to recover in response to the booming economy.
The isle's improving residential, retail and industrial markets have also propelled the office market, Hall said.
"The office market is always the last to follow suit," he said. "When the other markets generate jobs, then office space tightens and the market strengthens."
Tenants needing to expand office space to keep pace are finding that existing landlords are challenged to accommodate their needs, Hall said.
Tight parking also is starting to drive rental costs up, he said.
"As parking rates have also increased for guaranteed employee parking, they have become a critical issue in the decision-making process," Hall said.
As a result, larger tenants are planning for office space needs as many as two years in advance, Hall said.