Hawaii’s Industrial Market Copes with Supply Constraints

by Nellie Day

Scott L. Mitchell, Colliers International

Scott L. Mitchell, Colliers International

Hawaii is one of – if not the – top-performing industrial market in the country. The city and county of Honolulu, which contains Hawaii’s main shipping port, had a low vacancy rate of 2.05 percent at the end of the first quarter. This vacancy rate peaked at 4.8 percent in 2009. Significant gains have been made since then.

The direct weighted average asking net rental rate for industrial users in Honolulu was $13.80 per square foot (NNN) at the end of the first quarter, while operating expenses ran an additional $5.16 per square foot, per year on top of that. Having bottomed out after the downturn in 2009 at $11.20 per square foot, the Honolulu market has gained almost 24 percent since then. Land values have also followed suit.

Hawaii is definitely not Chicago or Los Angeles. In fact, both of those markets have individual industrial parks greater in size than the entire Hawaii marketplace, at 39 million square feet.

Having said this, Hawaii is in the midst of a construction and tourism boom, with billions of dollars being allocated to urban core renewal projects, light rail, resort renovations and new residential developments. Up until recently, this renewal had occurred primarily at the expense of an aging industrial inventory within the urban core.

While I would like to say the current strength within the industrial market is a result of expanding industrial commerce in Hawaii, the fact remains that even though our construction and tourism boom benefits the industrial market, the greater influence has been the loss of inventory to higher uses, as well as a lack of new inventory.

The economic downturn in 2008 halted the development of three new industrial parks. It wasn’t until just recently that Walton Street Capital out of Chicago and Angelo Gordon out of New York made significant investments here to restart and finish those stalled projects. Exacerbated by the time-consuming entitlement processes, this delay means we are not likely to see relief in supply for another couple of years. The result will be continued low vacancy (likely the lowest in the nation), coupled with rising rents and land values for the foreseeable future.

By Scott L. Mitchell, Executive Vice President, Colliers International. This article originally appeared in the July 2015 issue of Western Real Estate Business magazine.

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