Positive Pace in Hawaii

In the context of an improving economy led by tourism, Oahu’s office market remained stable during the second quarter of 2014, with a positive quarter-over-quarter net absorption of 14,094 square feet, while retail improved and industrial continued to attract investors despite a slow performance.
Oahu Submarkets by Vacancy

In the context of an improving economy led by tourism, Oahu’s office market remained stable during the second quarter of 2014, with a positive quarter-over-quarter net absorption of 14,094 square feet.

In Honolulu, CBRE Inc. data shows that the vacancy rate decreased, going from 14.5 percent in the first quarter to 14.4 percent by mid-year, while the average gross asking rent of $2.95 per square foot remained relatively stable for six consecutive quarters.

These trends can be attributed to the higher demand for office space generated by tourism-based businesses statewide.

The city’s suburban area experienced the highest improvements in vacancy, as well as increased long-term leasing activity. East Oahu, Windward and Central Oahu are the region’s most occupied submarkets, while Downtown Honolulu, West Oahu and Waikiki have experienced the highest vacancy rates.

The second quarter also ended with a series of notable office building sales in Honolulu. In June, for instance, two California firms—Atalanta Realty Investments and McKinney Capital Group—purchased a total of three Downtown office properties.

For the first half of 2014, however, the Oahu office market experienced a negative year-to-date net absorption of 113,622 square feet. And though net absorption was positive at 14,049 square feet in the second quarter, it was lower than the total positive net absorption of 53,136 square feet in the second quarter of 2013.

Hawaii’s unemployment rate decreased year-over-year, going from 4.9 percent in 2013 to 4.4 percent during the second quarter, according to a report released by the Bureau of Labor Statistics. This rate continues to be lower than the national average of 6.3 percent, and has remained so for the past 35 years.

In Honolulu, the overall unemployment rate was 4.2 percent as of May 2014. Year-over-year, employment in the city’s office-using sectors increased by 2.5 percent for the financial services industry and by 1.1 percent for the professional and business services sector.

Hawaii Retail RentsPositive Retail Sector

Hawaii’s retail market experienced a positive quarter-over-quarter net absorption of 20,236 square feet during the second quarter, according to CBRE, while statewide, the sector’s vacancy rate decreased slightly, from 5.7 to 5.6 percent. Community and neighborhood centers saw the greatest vacancy improvements, along with the resort centers, which were the best-performing locations given their higher exposure to both tourists and locals. Meanwhile, the occupancy rate for specialty and outlet centers remained flat.

Hawaii’s average gross asking rent, along with the average net asking rate, remained virtually unchanged quarter-over-quarter, at $7 and $5.21 per square foot triple net, respectively.

Leasing and sales activities remained strong, as national retailers continued to expand their businesses across Oahu and the neighboring islands.

Furthermore, by the end of the first half, Hawaii’s retail and hotel industries had attracted more than $1 billion in investment. Notable transactions and announcements included Macy’s commitment to anchor the regional mall development Ka Makana Alii in West Oahu, the Royal Hawaiian Center leasehold sale to J.P. Morgan Asset Management in Waikiki, and Whole Foods Market’s decision to open a flagship store at Ward Properties in Honolulu’s Kakaako district.

Hawaii Industrial RentsInvestment Interest in Industrial

During the second quarter, Hawaii’s industrial market saw a negative net absorption year-over-year of 60,245 square feet , according to CBRE, while the availability rate decreased across all islands, going from 3.3 percent in the second quarter of 2013 to 2.3 percent in the second quarter of 2014. Pearl City/Aiea, Kapolei and Windward were the best-performing locations on Oahu.

On a quarter-over-quarter basis, however, availability increased slightly, going from 2.2 percent in the first quarter of 2014 to 2.3 percent in the second quarter, while the base asking lease rents remained unchanged at 99 cents per square foot triple net. In the near future, however, lease rates are expected to go up with the tightening of the market.

As statewide industrial space remained minimal in the second quarter, the volume of lease transactions was less than 5,000 square feet, below the level of the previous quarter.

On Oahu, industrial sales activity totaled about $19 million, lower than the level registered in 2013.

Notable industrial land transactions within the same period included the purchase of the 54-acre Kapolei Business Park Phase 2 by Avalon Development Co. and Walton Street Capital LLC of Chicago. The joint venture paid $24 million for the property. In a separate transaction, the companies also acquired the 123-acre Kapolei Business Park West in West Oahu for approximately $60 million. Meanwhile, Eagle Leasing Inc. of Alabama purchased three acres of industrial land in Kapolei for $3.8 million.

Charts courtesy of CBRE Inc.