Office vacancies continue climb

The amount of empty office space on Oahu hit a nine-year high of 13 percent in 2011, and likely will rise again this year, according to a new report.

A survey by commercial real estate firm Colliers International said office tenants vacated the rough equivalent of a 13-story building, or 137,361 square feet, last year to push the vacancy rate to 13 percent from 11.8 percent in 2010.

The 13 percent vacancy rate represents 2 million square feet of empty space from an inventory of 15.6 million square feet on Oahu.

Office vacancies in 2011 rose for a fifth consecutive year, and neared the decade high of 13.62 percent in 2002 which followed a 13.68 percent rate in 1998 representing a peak since Colliers began tracking Oahu office vacancies.

Colliers predicts that vacancies will peak near 13.7 percent sometime this year, with a reduction starting to take hold before year-end.

Mike Hamasu, research and consulting director for the Honolulu office of Colliers, said job gains last year in sectors that include tourism and business services lead him to believe that companies will begin to lease more office space by the end of this year.

"If that continues, then definitely by year-end you’re going to see some positive growth (in office space leasing)," he said.

The state Department of Business, Economic Development and Tourism along with the University of Hawaii Economic Research Organization forecast statewide job growth of 1.6 or 1.7 percent this year compared with 1.2 or 1.3 percent last year.

DBEDT said the business services sector actually added 2,700 jobs over the past two years on Oahu along with 1,500 jobs in the information technology area. But leasing office space tends to lag behind job growth, and has also been held back by job losses in other areas such as financial services.

Hamasu said the amount of empty office space added to the market last year was less than what was created in each of the prior four years, suggesting that the rate of growing vacancies is slowing. "If you look at it from a pacing perspective, it does look like it’s slowing," he said.

The 137,316 square feet of additional vacant space last year compared with 227,177 square feet in 2010, 184,780 square feet in 2009 and 139,509 square feet in 2008. Only 9,578 square feet of vacant space was added to the market in 2007 as the slide began.

Colliers said the slide hasn’t had too much of an effect on rental rates sought by landlords. The average asking rate has remained near $2.80 in gross base rent per month per square foot. Colliers doesn’t track rental rates signed by new tenants, but said it appears those rates were lower last year than they were the year before.