Honolulu’s office market has remained relatively unchanged for the past decade, but recent events have led to a dramatic shift in the direction of the Downtown submarket. Office vacancy rates in Downtown Honolulu have increased consistently in recent years, and steady leasing activity has led to declining vacancy. The Downtown office market is currently the tightest it has ever been. The vacancy rate in Downtown Honolulu decreased 70 basis points to 12.1 percent in the third quarter of 2019, which is the lowest vacancy rate for the submarket in more than nine years. The average gross asking rate in Downtown decreased slightly from $2.94 per square foot to $2.90 per square foot in third-quarter 2019. A significant amount of movement within the Downtown office market is driven by government need. The federal government, IRS, and city and county of Honolulu, as well as other engineering firms tied to civil projects, are some of the most active employers when it comes to leasing office space in the area. Non-governmental office-using job growth has stagnated in the past four years, which has hindered more growth in the overall office market. Unemployment statewide was at 2.7 percent for October 2019, according to Hawaii …
Like so many markets nationally, the Hawaii retail real estate market was firmly in a state of flux in 2019. Despite more new vacancies than new openings — and limited new development — the Hawaii market held its own amidst challenging times. Investment sales demand and fundamentals remained strong, new and prominent retailers entered the market, and existing operators continued to expand and innovate. Last year brought both closings and openings to the Hawaii retail sector. Bucking historic trends, store closures outpaced new store openings. The closings that did occur were all related to corporate downsizing decisions, versus poor store performance by the Hawaii locations. Hawaii stores consistently post strong sales performances when compared to same-store national averages. In most instances, the Hawaii locations were the last to fold, given their consistently strong sales. Sears closed its 128,000-square-foot Windward Mall in Kaneohe, Oahu, in May. Kmart closed its last Hawaii location, a 119,000-square-foot store in Lihue, Kauai, in September. There are currently five vacant Kmart buildings and one vacant Sears location throughout the state. Early 2020 will follow suit, with the anticipated February closure of all seven Pier 1 stores on the islands. Brighter news included the return of Marshalls, …
As one of the premier global tourist destinations in the world, the Hawaii market is dominated by condos and hotels. It is also home to mega investment deals. A review of Hawaii’s investment market over the past three years shows that the hotel industry has made up the following percentage of the top 10 deals for each year: • 91 percent in 2017 • 55 percent in 2018 • 23 percent in 2019 The total sales volume for these deals has also seen a decline from more than $1.5 billion in 2017 to less than $926 million in 2019 as a result of a decline in foreign investors. In case you’re wondering, yes, there are multifamily properties in Hawaii. In fact, apartment sales represented 37 percent of the total sales volume for the top 10 deals in 2018. The largest investment deal was the $540 million portfolio recapitalization of Project Europa on Ewa Beach in Oahu. This was larger than the $505 million Global Hyatt Portfolio sale, which included the Grand Wailea in Maui. Institutional sales in 2018 were in the range of $371,000 per unit to $395,000 per unit, with cap rates in the 4.5 percent to 5 percent …
When we last reported on the health of Oahu’s industrial market in December 2017, we offered rationale for a then 1.88 percent industrial vacancy rate. This was fueled by demand from contractors building large residential condo developments, the construction of a nearly $10 billion light rail system (voter approved at less than $5 billion), booming tourism and military sectors and large public infrastructure improvements. Oahu’s small 40.4-million-square-foot industrial market was under further compression as industrial product was being taken by the state to support rail construction, or lost due to high rise residential construction and the expansion of our main Honolulu harbor. A prohibitive industrial construction cost scale, which generally exceeds $125 per square foot for metal skin shell warehouse, had also slowed spec and build-to-suit construction. Fast forward to late 2018, and our statistics reflect an industrial vacancy rate bouncing off the bottom at just 2.02 percent. The monthly industrial base rent average is $1.20 per square foot and monthly operating expenses are $0.40 per square foot. This vacancy rate average reflects a small increase over the previous quarter as tenants scrape the bottom of the inventory barrel looking for suitable space. LoopNet cites six industrial availabilities of more …
The Hawaii investment sale market was active in 2018 with an abundance of capital seeking investment opportunities throughout the state and across all product types. Mortgage availability from local banks and non-local financiers remained strong, and there was a steady flow of new interest from debt and equity sources looking for first opportunities in Hawaii. Last year’s transaction volume (including entity level) was up 33 percent from 2017 to $5.5 billion. Institutional and cross-border investment volumes were up from 2017 and performing well above the 10-year average. It was a slower year for private investors and REITs, though institutional capital from Singapore, Zurich, Kuwait, Germany and Japan were the foreign standouts in 2018. Entity-level activity boosted Hawaii’s transaction volume significantly in 2018. We anticipate this story to continue to spill over into Hawaii through 2019 as institutions deploy large amounts of capital to build scale. Brookfield’s acquisition of GGP was the largest entity-level transaction, which included the 2.5 million-square-foot Ala Moana Center with its two office buildings consisting of about 400,000 square feet, the Whalers Village in Maui and the Prince Kuhio Plaza in Hilo. The hospitality sector led the charge for the third year in a row with $2.45 …
Honolulu’s office market has been stagnant for nearly 20 years with negative supply growth, limited demand, constant reductions in square feet per person and a very tight labor market. However, conversions from office to residential and/or hotel use and a major tenant move could change the market starting in 2019. Multi-tenant inventory has decreased by about 500,000 square feet since 1996 with the conversion of an office building to a hotel in 2015 through 2017; another taken off the market in 2016 for a hotel or residential conversion; and yet another converted to office condominiums in 2004. The market currently has about 11 million square feet in 73 Class A and B multi-tenant buildings. Half the inventory and 65 percent of the vacancy (940,000 square feet) is in the Central Business District (CBD), which is Hawaii’s financial center and sits adjacent to federal, state and municipal centers. New inventory has been limited to owner-users, medical office buildings and small mixed-use buildings. These include Hale Pawaa, a 135,000-square-foot medical office building, the 160,000-square-foot FBI building, the 240,000-square-foot NOAA Regional Center, the 75,000-square-foot Princess Kamamalu State office building and the 26,000-square-foot former Honolulu Advertiser Building for Hawaiian Dredging. Office users are generally …
When we last reported on the health of Hawaii’s industrial market in 2018, we offered rationale for a then 2.02 percent Oahu industrial vacancy rate. This rate was fueled by the completion of many large residential high rises in urban Honolulu, the ongoing construction of a $9.2 billion light rail system (voter approved at less than $5 billion), and booming tourism and military sectors, our two biggest economic drivers. Oahu’s small, 41 million-square-foot industrial market was under further compression as industrial product was either being taken — or functionally interrupted — by the state to support light rail construction or lost to high-rise residential construction and the expansion of our main Honolulu harbor. A prohibitive industrial construction cost scale, which generally exceeds $125 per square foot for metal skin shell warehouse, had also slowed spec and build-to-suit construction. Fast forward to late 2019, and our market reflects an Oahu industrial vacancy rate of just 2.13 percent, a monthly industrial base rent average of $1.24 per square foot and monthly operating expenses of $0.41 per square foot. Much of this rate is composed of property taxes, which have increased more than 30 percent year over year in some areas, and 50 …
Hawaii’s office market is dominated by Honolulu, which is home to 70 percent of the state’s population and commerce. More than 90 percent of the state’s 12 million square feet of multi-tenant Class A and B office space is located in Honolulu, with nearly 80 percent of Honolulu’s inventory situated in the four-mile stretch between the Central Business District and Waikiki. Hawaii’s office tenants are primarily in industries that support tourism, military, construction and government – Hawaii’s economic drivers. These include FIRE (Finance, Insurance, Real Estate), plus legal, CPAs, architects, engineers and contractors. Hawaii also has a small but growing innovation economy that has spawned several co-working centers, incubators and impact investment firms backed by the University of Hawaii. These names include Lauren Powell Jobs (widow of Steve Jobs), Pierre Omidyar (founder of eBay) and Henk Rogers (Tetris). Larry Ellison purchased 97 percent of the Island of Lanai in 2012 for $300 million and could join the list of tech billionaires interested in supporting Hawaii’s innovation economy. Hawaii has seen slow but steady job growth in office-using businesses, but the drive to reduce square feet per office worker and the related cost savings has resulted in a net loss of …
Construction costs in Hawaii are beginning to plateau after seeing year-over-year increases for the past several years. The market has seen gray shell retail building costs of about $275 per square foot; and to vanilla shell, another $80 per square foot to $100. Restaurants range from $300 per square foot to $350 to take them from gray to finished shell without fixtures. Remarkably, even with escalating construction costs, retail leasing and development are both extremely active. This, combined with retail vacancy of about 3 percent and record rents, has spurred a wave of new projects. Some of the new retail projects currently under construction are: Kilauea Lighthouse Village, Kilauea Town, Kauai — The center is a 47,000-square-foot development anchored by a 10,000-square-foot Market at Kilauea. Construction on Kilauea Lighthouse Village has begun and is expected to be complete in late 2017. It is owned by Hunt Development and leased by Colliers International. Kahala Bowl Shopping Center, Honolulu – Anchored by McDonald’s, the 10,000-square-foot center is owned by Kamehameha Schools and leased by JLL. Kealanani Shopping Center, Kapolei — This 20,000-square-foot center, anchored by Panda Express, is an outparcel of the Walmart in Kapolei. It is owned by Panda RG Inc. …
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 …
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