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Office space vacancies projected to linger

Continued weakness in hiring and an uneven economic recovery are to blame, a report says

By Andrew Gomes

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A rebound for Oahu's slumping office space market is not expected to begin until late this year, according to an industry report that projects vacancies will grow for a fifth consecutive year in 2011.

The report by local commercial real estate firm Colliers Monroe Friedlander expects 12.4 percent of office space on Oahu will be vacant at the end of this year, up from 11.8 percent at the end of last year.

Colliers said Honolulu companies engaged in financial services, information technology and other professional services aren't expected to resume significant hiring that boosts demand for office space.

"While the overall economy is projected to improve, it appears that job growth will remain elusive for the office sector in 2011," the report said.

Job growth is the principal driver of office space demand. But some 9,350 office jobs were lost between October 2008 and October 2010, according to Colliers. "The office sector continues to shed jobs as the economic recovery appears to be disjointed and uneven," the report said.

EMPTY SPACE

» Total leasable space: 15.7 million square feet
» Vacant space: 1.8 million square feet
» Net vacant space addition in 2010: 227,177 square feet

REGIONAL VACANCIES

Vacancy rates in Oahu submarkets at the end of last year:
» Waikiki: 19.5 percent
» Airport/Mapunapuna: 11 percent
» Downtown: 12.3 percent
» Kalihi/Kapalama/Iwilei: 12.2 percent
» Kakaako 9.3 percent
» Leeward Oahu: 10.6 percent
» East Oahu: 8.9 percent
» Windward Oahu: 8.5 percent

Source: Colliers Monroe Friedlander

A report by competing commercial real estate firm CB Richard Ellis also noted that recovery in office leasing historically has lagged economic recoveries, "and this current downturn is no different."

CB Richard Ellis said in its report that the local commercial real estate market has likely reached the bottom of a trough and is on a path toward recovery. The report doesn't project a vacancy rate this year, but Kalani Schrader, a CB Richard Ellis executive vice president, expects vacancies to be flat or slightly down this year.

"We're seeing some positive (leasing) activity," he said.

A somewhat positive view from Colliers is that the company expects vacancies to grow this year by about 100,000 square feet. That's roughly equivalent to a 10-story building but is a little less than half what was added to the market last year.

"This is a hopeful sign that the rate of loss is slowing," Colliers said in the report.

Tenants vacated 227,177 square feet more space last year than they occupied, according to the Colliers report, which is based on a survey of 163 buildings islandwide.

The additional empty space pushed total vacant space to 1.8 million square feet out of 15.7 million square feet of office space, or 11.8 percent of Oahu's market.

The rate is well above the recent low of 7 percent in 2006 but remains below the previous high of 13.6 percent in 2002.

Despite the market weakness last year, rents sought by landlords stayed fairly stable. Colliers said the average quote for gross full-service rent was $2.79 a month per square foot, compared with $2.74 the year before.

The slight increase was attributed to increases in building operating expenses.






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