Hawai'i office vacancies on rise

By Andrew Gomes
Advertiser Staff Writer

Hawai'i businesses renting office space have seen little change in rates since the Sept. 11 attacks that triggered a general economic decline in the state, but by year's end rents could be down 5 to 10 percent, according to a recent report.

As companies struggle with the economy, by scaling back and sometimes closing their operations, landlords trying to hold on to tenants also may start offering temporary free rent and other incentives not seen in Hawai'i since the mid to late 1990s.

The projections are part of a recent report by Honolulu-based commercial real estate firm Colliers Monroe Friedlander, which said it is possible that 200,000 square feet of O'ahu office space (roughly the size of the Ala Moana Building or City Financial Tower) may go vacant by the end of the year.

Mike Hamasu, Colliers research and consulting director, said real estate tends to lag the rest of the economy, so the worst probably won't be felt until the second half of this year.

Local economists forecast that the state's recession will last through this month, begin to recover in the second quarter then pick up steam in the later half of the year. But the office segment of the real estate market is unlikely to see much improvement.

"I think the office market won't see any improvement till next year," said Matt Bittick, managing director of Honolulu real estate firm Grubb & Ellis/CBI.

Bittick said he's seeing national companies with offices in Honolulu commit to shorter leases since Sept. 11 — in some cases as little as one year.

Combined with a lack of new businesses opening, this year is going to be a sore one for some landlords, especially those with lower-class buildings, as vacancies rise in the next six months, brokers said.

Average rents have hovered around $2.15 a square foot since the end of last year, with the average vacancy rate at about 13 percent for buildings on O'ahu with at least 20,000 square feet of space (excluding government and medical buildings).

CB Richard Ellis Hawai'i Inc., another commercial real estate firm, is a little more optimistic about rents, which it said should show some stability as demand for space falls and availability increases.

However, the firm noted in its recently released year-end market report that one trend has been for companies to squeeze more people into less space, a trend it expects will continue.