Posted on: Saturday, July 10, 2004

Hawai'i job growth trims office space vacancies

By Andrew Gomes
Advertiser Staff Writer

Hawai'i job growth has begun to show its effect on Honolulu's office market, as companies increased their use of space during the first half of the year at a rate not seen since 1988, according to a new survey.

Businesses moved into 90,677 square feet of space between January and June, reducing the vacancy rate to 11 percent, said local commercial real-estate firm Colliers Monroe Friedlander.

Compared with a 13.75 percent vacancy rate at midyear 2003, the 2.75 percentage point drop was the greatest since 1988 when vacancies fell by nearly 4 percent, Colliers said.

Mike Hamasu, consulting and research director for Colliers, said office market changes typically lag general economic trends such as job growth, so he projects vacancies will further decline to about 10 percent next year, 9.75 percent in 2006 and 9.4 percent in 2007.

Unemployment in the state dropped in May to 3 percent, its lowest since October 1991, and local economists project job growth to be near 2 percent this year and next.

Office rents, however, were flat over the past six months, but are projected to increase within the next year, Colliers said.

The changes represented a reversal from the first six months of last year when 131,000 square feet of available space opened up, or the equivalent of a 12-story office building. At that time there was a total of 2.1 million square feet of vacant office space.

At the end of June the amount of vacant office space fell to 1.7 million square feet, Colliers reported.

One of the biggest improvements in the market occurred at 1100 Alakea. The downtown tower was half empty, with about 100,000 square feet available before Alexander & Baldwin bought the building and offered space for sale as office condominiums.

Colliers reported that about 40,000 square feet of space in the building has been filled over the first half of the year, by mostly tenants buying space. Another 56,000 square feet is available for lease and can still be purchased.

Grubb & Ellis/CBI, another real-estate firm that reports office vacancy figures, removed 1100 Alakea from its survey last year.

Grubb & Ellis reported that vacancies grew during the first six months of the year by 12,000 square feet. By not including 1100 Alakea in its survey inventory, Grubb & Ellis counted companies moving out of other office space and into 1100 Alakea as an increase in vacancies.

Still, Grubb & Ellis research services manager Jeff Nasrallah said the market is positioned to improve. "The economy is on track to support corporate expansions and new company formations," he said in his report.

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