— By William (Bill) Froelich of Colliers —
s of first-quarter 2025, Oahu’s industrial market remains one of the tightest in the nation — but signs of softening are emerging. Our 41.9 million square foot market reported a vacancy rate of 1.2 percent, the highest in over two years, up from 0.9 percent in fourth-quarter 2024 and a near-record low of 0.6 percent in third-quarter 2023. Net absorption was negative at -115,001 square feet in first-quarter 2025, marking the fifth quarter of negative net absorption in the last six.
Despite this, direct weighted average asking base rents reached a new high of $1.56 per square foot per month, reflecting continued landlord leverage in a market with severely constrained supply. Industrial operating expenses also rose, averaging $0.54 per square foot monthly, pushing our gross rents over $2.00 per square foot.
Raw Land Market: A Race to Buy Before It’s Gone
In a typical year, Oahu absorbs 10 to 20 acres of raw industrial land. But in a short period between the end of 2021 and the first half of 2022, over 100 acres had traded, driven by high-profile acquisitions such as Amazon’s 50-acre purchase and Costco’s 45-acre site purchased for almost $130 million. These acquisitions were the planned availabilities for owner users over several years. The resulting land rush has pushed urban core industrial land values well above $200 per square foot — with some parcels in our urban core selling for over $300 per square foot. You can still buy residential ocean-view land for less than that.
Land constraints remain one of the most defining features of Oahu’s industrial landscape. With new supply years away, developers and users alike are paying premiums to secure their position.
Development Headwinds: Cost, Time, Labor, and Potentially Tariffs
Construction costs continue to challenge industrial development in Hawaii. While material price increases have leveled off in 2024, they remain at all-time highs with warehouse shell development routinely priced above $200 per square foot before factoring in land cost. Tariff threats with key suppliers like Canada, China, and Mexico introduce further uncertainty. Combine this with 12- to 24-month permitting timelines (longer on neighbor islands like Maui), and you begin to understand why new inventory is slow to materialize.
That said, approximately 600,000 square feet of industrial space is projected to be delivered by the end of 2025, mostly in Kapolei and James Campbell Industrial Park.
On Maui, RD Olson Development recently completed a Class A, 120,000-square-foot distribution facility with 15 loading docks and 150 parking stalls that is ready for immediate occupancy.
Ground Leases and Rent Resets:
Nearly half of Oahu’s industrial base is leasehold. In 2022 and 2024, many leaseholds sites underwent ground rent resets. With land values at record highs, resets tied to market valuations triggered steep rent increases, squeezing out several long-term sandwich master lessees.
Oahu Submarkets
Across Oahu, vacancy remains tight but varies by submarket. Mapunapuna, Sand Island and Gentry Business Park all posted 0.00 percent vacancy in first-quarter 2025. Rents ranged from $1.25 to over $2.35 per square foot.
Industrial users in Honolulu’s core — Kalihi, Iwilei, Airport — are still fighting for space. But demand is somewhat more favorable in larger blocks and in west Oahu.
Outlook: Stabilization or a Warning Sign?
In many respects, Oahu’s industrial market continues to defy national trends. While vacancy rates nationwide have spiked to over 6 percent, Oahu remains below 2 percent. But some softening is evident. A decline in wholesale distribution, escalated construction pricing, a flat or slightly reduced tourism sector, reduction in government spending, shallow industrial labor pool and long permitting times weigh on the market performance.
Yet tight supply, high land costs and slow development pipelines suggest the fundamentals remain sound. And with under 0.5 million square feet available market-wide, even a modest demand rebound could erase the first quarter’s negative absorption.
For now, Oahu remains a landlord’s market.
— By William (Bill) Froelich, vice chair of industrial and investment services at Colliers in Hawaii. This article was originally published in the June 2025 issue of Western Real Estate Business.