Retailers face space crunch

Retail rental rates are expected to jump by at least 10 percent each year until 2010

Local retailers will likely see double-digit rent hikes over the next year as space becomes even more scarce in an already tight market.

While other areas of commercial real estate appear to have peaked, retail is likely to see record growth through 2009, according to Mark Bratton, vice president of Colliers Monroe Friedlander Inc., who presented the retail market forecast yesterday at the Hawaii Developers' Council mid-year real estate review.

Rental rates are expected to jump by at least 10 percent annually until 2010, boosting the $3.50-per-square-foot rents retailers currently pay, which have already climbed 40 percent over the past four years, he said.

"The market is so tight that landlords can raise rents every time they have a vacancy," Bratton said. "Right now there's no choice for retailers ... if they want to stay in business they have to pay."

And there won't be more choices until 2009, when the first of about 25 new retail projects begin to open, bringing on line 5 million square feet of space statewide by 2010, including 2 million square feet of new development in Kapolei, Bratton added.

"Kapolei's going to see a lot of activity, and may get overbuilt by 2010, but we're a long way from that today," he said, adding that vacancy rates are expected to rise to nearly 8 percent in 2010, compared to between 2 and 3 percent today.

Meanwhile, office occupancy has declined by 87,000 square feet year to date, increasing vacancy to 8.8 percent as demand for space weakens, said James Brown, president of Hawaii Commercial Real Estate LLC.

That's compared to occupancy last year that grew by 188,000 square feet, with island-wide vacancy at 8 percent.

Nonetheless, office rents have increased 13.5 percent year to date as a result of higher business costs including utilities, property taxes and insurance.

The industrial market also will continue to see rents rise, though more slowly than the past three years. The tight market has resulted in a 100 percent increase in base rents over the past 36 months with less than 2 percent vacancy, according to C. Mark Ambard, owner of Ambard & Co. Commercial Real Estate.

New projects are expected to come on line in 2008 and 2009, he said, though it will not be enough to ease demand, particularly for small spaces.