For rent: Plenty more office space in Honolulu

Many aspects of work in Hawaii continue to improve as protections from COVID-19 increase, but use of office space isn’t one of them.

Growth in the amount of office space on Oahu available for lease in the first half of this year nearly matched last year’s total, a new study showed.

About 127,000 square feet, or the rough equivalent of a nearly 13-story building, was added to the island’s available inventory this year through June after the addition of about 132,000 square feet last year, according to the report by local commercial real estate firm Colliers International released Friday.

Much of the flood of available office space coincided with job losses and employees working from home last year as the coronavirus pandemic prevented gathering and damaged Hawaii’s largely tourism-based economy.

However, as a gradual recovery has mounted in the local economy, a significant number of employers with office space have decided to eliminate or downsize what they use even as business bounces back.

“Since the initial shutdown of Hawaii’s economy in late March 2020, Oahu’s office market has struggled to find its footing,” the Colliers report said.

Mike Hamasu, the firm’s director of research and consulting, said his guess is that occupancy losses in Oahu’s office market will expand by 10% to 20% over the next three to five years as leases expire and more employers determine how many of their employees can work remotely.

“It’s kind of a gray area right now, what we’re going to do,” he said. “Are we going to downsize? Are we going to work from home or do a hybrid thing? It’s a social experiment that’s kind of unfolding in front of us. There’s still quite a bit of uncertainty.”

The report referenced a national industry group survey earlier this year that suggests the volume of employees working full time in an office will fall from 70% prior to the pandemic to 43% over the next 12-18 months.

This survey by Washington, D.C.-based Building Owners and Managers Association International received responses from more than 3,000 commercial office space decision-makers in 20 major U.S. markets between March and May.

The Colliers report notes that the typical length of an office space lease is three to five years, so the expected shift in the marketplace likely will fully develop over this period.

From the beginning of last year through last month, the roughly 259,000 square feet of added available office space for lease on Oahu pushed the amount of available space to 1.7 million square feet, representing a 12.4% vacancy rate in a market with 13.9 million square feet of leaseable space.

Available space includes space that is not leased to any tenant as well as space that is leased to a tenant that doesn’t want the space and is seeking a sublessee.

Oahu’s 12.4% vacancy rate for office space at the end of June is up from an 11-year low of 9.9% in 2019, yet it remains under the 2018 rate of 12.8%.

The market’s peak over the past three decades was 13.7% in 1998.

Colliers projects in its report that the vacancy rate will stay between 12% and 13% through the end of this year.

“While job growth and a boost in business reopening should fuel demand for office space, these factors would be weighted against the workplace evolution that is underway,” the report said.