New retail stores and construction projects helped revive Oahu’s weak industrial real estate market last year, according to two recent reports.
The reports by commercial real estate firms Colliers International and CBRE show that occupancy at Oahu warehouse properties surged last year in a sooner-than-anticipated recovery that ended five years of declines or no growth.
Colliers said more warehouse leasing cut the market’s vacancy rate from 4.8 percent at the end of 2011 to 3.8 percent at the end of last year. It was the first decrease since 2004.
About 392,000 square feet of empty warehouse space was filled last year, the Colliers report said. That ended five years of rising or relatively flat vacancy levels.
"The improved economy is placing increased demands on the island’s industrial marketplace," Colliers said in its report released last week.
CBRE’s report was released earlier this month and pegged the vacancy rate at 4.4 percent at the end of last year, in part because the company tracks fewer properties.
But CBRE said 583,897 square feet of empty warehouse space was filled, marking a five-year high.
Regardless of the differences in the reports, Oahu’s industrial real estate market turnaround represented welcome news considering that both firms a year ago didn’t expect the market to improve.
A year ago Colliers projected that warehouse vacancies, which had been at 4.8 percent for three consecutive years, would increase in 2012 to between 5 percent and 5.3 percent. CBRE expected the market would stay flat in 2012.
In the new reports, both companies said construction and retail industry growth last year raised demand for warehouse space. The firms also said that an approaching deadline to leave state-owned industrial property in Kapalama was another factor behind rising occupancy rates.
The state plans to develop a new shipping container terminal on 94 acres at the former Kapalama Military Reservation site at the Ewa end of Honolulu Harbor, where numerous businesses lease warehouse space. As a result, tenants occupying about 1.5 million square feet of industrial space there will have to move by February 2014.
The increasing demand for warehouse space is putting pressure on rental rates to rise and should lead to higher occupancy rates this year, Colliers and CBRE said in their reports.
Colliers said base rent sought by landlords had a weighted average of 96 cents per square foot per month at the end of last year, up from 92 cents a year earlier. The company predicts that the rate will top $1 this year.
Vacancies are expected to fall below 3.25 percent by the end of this year, Colliers projected. CBRE did not predict a vacancy rate this year in its report, but the company also expects the rate to fall.
"Healthy tourism spending and the continued expansion of retailers should continue to drive the need for warehousing and distribution services," CBRE said in its report. "With a lack of new supply and pent-up demand in the market, this positive trend is expected to continue in the near term."
The last time Oahu’s warehouse vacancy rate was 3 percent was 2007 as empty space began growing amid the economic recession, according to Colliers. During Hawaii’s previous economic expansion in the early part of the last decade, Oahu’s warehouse vacancy rate dropped to a low of 1.7 percent in 2004.
The 4.8 percent rate from 2009 to 2011 was a recent high but was still below a prior high of 6 percent in 1999 reported by Colliers.
The present 3.8 percent rate in the Colliers report represents 1.5 million square feet of vacant space out of 39.2 million square feet.
The CBRE report tallied 1.5 million square feet of vacant space out of 34.1 million square feet.
