Office-space glut won't end, but investors may make things happen

By Andrew Gomes
Advertiser Staff Writer

Hawai'i's commercial real estate market in 2003 should see another dynamic year, according to real estate experts.

But because the four markets — investment, retail, office and industrial — are moving in different directions, industry observers expect mixed prospects: strong buyer interest and industrial-sector growth but an office-space glut and a spike in retail vacancies.

Ron Teves, president of Coldwell Banker Commercial Pacific Properties, said the investment market should be particularly active, spurred by factors including a volatile stock market, low interest rates and continued pressure on some Japan-based companies to sell their Hawai'i properties.

"We're seeing investment dollars looking to acquire real estate," he said. Teves noted the stock market has made real estate a safer-looking haven just as low interest rates are allowing investors to buy more.

Among some of the bigger sales that could transpire in the coming year involve the Renaissance Wailea Beach Resort, W Hotel, at least a half-dozen golf courses, thousands of square feet of retail space and thousands of acres of agricultural land.

C. Brewer & Co. Ltd., which began selling 74,000 acres of agricultural and conservation land in mid-2001, has $35 million in sales scheduled to close in 2003, with another $41 million in transactions under negotiation.

In retail, there could be as much as a 2 percent addition to O'ahu's 8 percent vacancy rate if landlords don't immediately fill the space of departing JC Penney in January.

"There will be a spike," said Mike Hamasu, research director at local real estate firm Colliers Monroe Friedlander.

Hamasu anticipates that the empty JC Penney space should not linger long for landlords, though there will be more challenging retail space to lease, such as in Waikiki, where the vacancy rate is around 15 percent and not expected to change much.

Retail rents, which fell 7 percent on O'ahu during the first nine months of 2002, should stop moving at least through the first quarter of 2003, according to a recent report from local real estate firm Grubb & Ellis/CBI.

Meanwhile, the office market is in relatively poorer shape with vacancies running around 14 percent. Grubb & Ellis/CBI expects 50,000 square feet of space to empty and remain empty.

Teves said a lack of expected white-collar job growth will leave rents and vacancies stagnant.

"There still needs to be some economic growth for the office space to fill up," said Steve Sofos, president of Honolulu-based Sofos Realty Corp. "Otherwise you're going to get musical chairs. A tenant moves from downtown to Kapi'olani, and another tenant moves from Kapi'olani to downtown."

A strengthening construction industry largely fueled by home building is expected to keep demand up for industrial property, Colliers said.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.