Vacancy at industrial spots
drops to record 1.71 percent

Oahu industrial tenants are
having to leap at the slightest
rumor of available space

Record low vacancies are driving up industrial rent and land prices on Oahu, according to a new report by real estate firm Colliers Monroe Friedlander.

Honolulu's vacancy rate for industrial property fell to a record 1.71 percent from an already low 2.69 percent a year ago, according to the year-end report released yesterday. Despite a lack of available warehouse space, tenants scooped up an additional 339,683 square feet of space this year.

The rapid rise in land and construction prices, the shortage of available industrial zoned land and the large percentage of leasehold ownership have exacerbated an already tight warehouse market, said Mike Hamasu, Colliers' director of consulting research.

Increasing demand coupled with a limited inventory forced tenants to pay higher rents and to lease previously vacant properties, he said.

"Unless a tenant is aggressive, willing to move quickly and act on even the rumor of an available space, they will be left having to continue their search along with multitudes of frustrated prospective tenants," Hamasu said.

For example, after word got out that the TV series "Hawaii" was going to be canceled, the owner of the TV production facility where it was filmed in Mapunapuna received three offers, he said.

At year-end, Oahu recorded a 96 cent-per-square-foot asking rent for warehouse space, up from 91 cents six months ago. While rent growth hasn't been dramatic because of a limited number of quality properties on the market, current rents exceed the levels posted during the height of the Japanese bubble of the early 1990s, Hamasu said.

The tight market is expected to drive rents up another 15 percent to 25 percent in 2005, he said.

"Development will likely come too slowly to satiate the rampant demand for warehouse space," Hamasu said.

The limited availability of industrial properties has made those lands more valuable, he said.

Land at Mill Town Industrial Park in Waipahu nearly doubled to $40 a square foot from $24. Kapolei Business Park land prices rose to $18 a square foot from $11.

"Just consider if you had invested in vacant land -- in one year, you would have made a 60 to 90 percent return on your initial investment," Hamasu said.

For the coming year, land prices are expected to continue climbing. Properties in Kalihi and Sand Island could reach $100 a square foot, he said.

Construction within Leeward, West and Central Oahu industrial parks is expected to begin in earnest, although the limited availability of industrial land and buildings will likely slow growth plans for large tenants, Hamasu said.