Industrial rent hits
highest in 20 years

Average asking rents for industrial space on Oahu have breached $1 a square foot, the highest in 20 years, according to a new report from Colliers Monroe Friedlander Inc.

"We're probably the most expensive industrial market in the country," said Mike Hamasu, director of consulting and research for Colliers Monroe Friedlander. "In some regions, industrial rents have surpassed office rents."

For example, a site in Bougainville that was vacated by Costco and failed to attract another big-box retailer has been converted into premium industrial space that will rent for about $1.25 a square foot, Hamasu said.

Oahu's booming construction, military and tourism markets have forced businesses to look for more places to store and make goods, he said.

"Everything is growing at a strong pace and as a result the industrial real estate market is getting increasingly tight," he said. Vacancy rates remained below 2 percent, even though tenants leased another 136,344 square feet of space during the first half of this year.

The amount of cargo tonnage at Honolulu Harbor, which can indicate demand for warehouse and distribution space, has risen 16.6 percent since 2001 as a result of the increased demand by retail, wholesale and construction trades.

As a result, the number of available industrial properties has fallen to 52 listings at mid-year, Hamasu said.

"That's a severe shortage situation," he said. A short supply of land and a lengthy permit process make it unlikely that another industrial park can be built for at least the next two to three years.

With rising land values outpacing increases in rental rates, Hawaii's speculative developers have begun to consider industrial condominiums, which can be sold individually to businesses.

"Many small businesses are finding these industrial condo projects appealing, as it may be their only way to get into ownership positions," he said.

One such project, the Kapolei Spectrum, offers 105,855 square feet of industrial space subdivided into 10 fee simple condos, with units as small as 1,500 square feet, Hamasu said. Several more industrial condominiums are in the works.