December 22, 2006
Oahu's industrial
rents are rising
Oahu's industrial vacancy rate inched up to 2.3 percent
at the end of this year, according to a report released
yesterday by Colliers Monroe Friedlander.
While the rate is higher than the 1.8 percent at the end
of 2005, Oahu still remains one of the tightest
industrial markets in the nation.
The
average asking base rent continued to rise to $1.10 per
square foot per month compared to $1.07 in the middle of
the year, and 99 cents per square foot at the end of
last year.
New
construction helped push the vacancy rate higher,
although most of it is of industrial condominiums
targeting owner-users rather than tenants. Demand for
warehouses on the island continued to outstrip supply.
"Despite this dramatic increase in rents and a continued
strong tenant demand, developers haven't entered this
market with huge amounts of speculative construction,"
the report said. "Two primary factors have dampened
their enthusiasm: rapidly rising land prices and the
jump in construction costs."
Whereas a warehouse in Kapolei could have been built for
about $85 per square foot in 2004, including land and
construction costs, it would cost at least $140 per
square foot today.
With
construction cost increases outpacing rental rate
increases, speculative construction will remain
curtailed.
For
Christine Camp Friedman, president of the Avalon
Development Co., it was quicker to turn around and
put 13 fee-simple industrial lots in Waipahu on the
market than to build them out.
The
lots at Sugar Mill Center at Mill Town are on the market
for between $52 to $57 per square foot, and Friedman
says every lot has an interested buyer, backed up by a
waiting list.
"We
would have done the industrial buildout, but it would
have taken longer," Friedman said. "It was easier for us
to say, 'Just buy it.' We've had a lot of interest
because of the fee simple nature of our property and the
location."
Colliers predicts that the 110,000-square-foot Kapolei
Spectrum industrial condo development will be sold out
by mid-2007.
This
means that the spikes in rents are likely to continue.
Every industrial park on Oahu has an average asking rent
at $1 per square foot and higher, the report said.
Peter Savio, president of Hawaiian Island Homes Ltd.,
recently bought the six-story Kakaako Commerce
Center at 875 Waimanu St. to offer as warehouse and
condominium units.
He
will be making a minimal investment of at least $1
million into the property, and will offer the units to
current users at about $250 per square foot in February.
"There is definitely a tightening of the market, and
it's going to continue to tighten," said Savio. "I think
demand is going to remain strong. The problem is the
cost of building and land is great, so to try to build a
new warehouse on a speculative nature becomes more
difficult because you have to have higher rents."
Savio, however, said he remains confident that the local
economy will outperform the national economy. He is
looking for other industrial properties to convert to
condos.
"Our
basics are very solid and I think we're going to have a
pretty good run for another five to 10 years," he said.
Hamasu of Colliers Monroe Friedlander predicted vacancy
rates would remain between 2 percent and 2.5 percent at
the end of next year.
-Nina Wu
Honolulu Star Bulletin - December
22, 2006
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