Office-space demand surged at year’s end

Oahu’s office property market improved for a second straight year last year thanks to a surge of leasing activity in the fourth quarter, according to a new report.

The report by commercial real estate firm Colliers International released for publication today said tenants filled an additional 119,748 square feet of office space last year compared with what was occupied at the end of 2012.

Most of last year’s gain happened late in the year, as 95,943 square feet of space was filled between October and December after a more or less flat first nine months.

Colliers said that the state Department of Public Safety as well as companies including ‘Ohana Health Plan and Alu Like contributed to the occupancy gain during the fourth quarter.

The full-year rise in occupancy followed a gain in 2012 representing 103,842 square feet of space that ended a five-year slide in occupancy.

Colliers said the new positive trend raises hope that Oahu’s office market has shifted into a growth phase.

"While we are far from being in a landlord’s market, two consecutive years of declining vacancy rates supports the premise that job growth is beginning to fuel demand for office space," the report said.

Colliers added, however, that some skepticism remains among office leasing brokers about the market.

The additional occupancy last year reduced the market’s vacancy rate to 12.2 percent from 13 percent at the end of 2012. That is still a relatively high level of vacancy compared with the low point during the last decade of 7 percent in 2006.

A 12.2 percent vacancy rate represents about 1.8 million square feet of vacant space, or the rough equivalent of a building rising 180 stories.

Colliers forecasts that occupancy will take a hit during the first half of this year from an expected move by the National Oceanic and Atmospheric Administration to consolidate staff to Ford Island from office buildings largely along the Kapiolani Boulevard corridor. Countering that should be added demand from businesses, especially ones related to construction such as engineers, architects and planners.

The firm’s projection for the full year is that vacancy will stay between 12 percent and 12.5 percent. Rents will likely remain flat because of that, Colliers added.