Less space for lease
by Andrew Gomes
Advertiser Staff Writer
The economic downturn has claimed some O'ahu retailers, but on the whole more shops and restaurants are surviving or opening than closing, according to a new report.
A survey by local commercial real estate firm Colliers Monroe Friedlander said 73,159 square feet of empty retail space was filled so far this year, putting the vacancy rate at 2.87 percent — the lowest level since 2006.
The vacancy rate, which equated to 352,564 square feet of empty space out of nearly 12.3 million square feet, was down from 3.98 percent at about the same time last year and 3.47 percent at the end of last year.
Colliers said the decrease was primarily due to national retailer Bed Bath & Beyond leasing 48,000 square feet of retail space at Pearlridge Center that had been vacant since early last year following the bankruptcy and closure of Circuit City.
Other smaller gains in occupancy occurred around the island, including 17,000 square feet filled in Waikīkī, primarily at Royal Hawaiian Center and DFS Galleria.
Colliers noted that the gains could be erased later this year as a still-weak economy takes a toll on struggling retailers. So the company is holding to a negative forecast on retail vacancy for the full year. The firm said it expects vacancy to reach 4 percent by year-end, slightly less than a 5 percent vacancy rate projection for 2010 it made at the end of last year.
Part of the bearish outlook from Colliers stems from expectations that cumulative effects of the weak economy could still push retailers to downsize or go out of business.
One struggling local chain, Price Busters, filed for bankruptcy in January after opening two new stores last year in the midst of the economic downturn.
The discount retail chain with nine stores recently rejected the lease for its Downtown Honolulu store, which will close. However, the company's bankruptcy attorney, Jerrold Guben, said Price Busters hopes to keep operating its other eight stores if satisfactory lease arrangements including extensions can be made.
If O'ahu's retail space vacancy rate rises this year, it would be the first increase since 2003, according to Colliers data.
On the other hand, if vacancies stay down it would show that retailers for the most part outlasted the state's economic troubles that look as though they're starting to fade.
Earlier this month, the state Department of Business, Economic Development and Tourism forecast that state gross domestic product adjusted for inflation will rise 1.1 percent this year, which the agency revised upward from a 0.9 percent growth projection it made three months earlier.
Mike Hamasu, research and consulting director for Colliers, said retailers aren't out of the woods yet, though for the most part the industry has been relatively unscathed.
"They weathered the downturn pretty well," he said.
In some cases, landlords have helped by providing breaks to tenants and kept shopping centers filled. Improvements in tourism and unemployment in recent months also have helped retailers.
NEIGHBOR ISLE RATES
One big factor that has kept vacancy rates from soaring like some Mainland markets is that Hawai'i developers didn't build an abundance of new shopping centers right as the economic downturn unfolded.
"For the most part, many of Hawai'i's retail developers dodged the bullet by shelving or postponing their projects," Colliers said in the report.
Even though vacancies are down, landlords recognizing the economic challenges of retailers have generally kept asking rents down.
Colliers said the average asking rent is about 6 percent below its 2008 peak. The firm predicts that average asking rents will decline by another 5 percent to 8 percent.
While the Colliers report shows positive occupancy for O'ahu this year to date, Neighbor Island retail markets weren't faring as well through the first quarter, according to a report by rival commercial real estate firm CB Richard Ellis.
CBRE reported that retail vacancy grew in the first quarter on the Big Island, Maui and Kaua'i.
Kaua'i had the highest rate at 11.1 percent, which reflected 56,936 square feet of vacant space including 22,948 square feet that was added during the quarter.
On the Big Island, the vacancy rate was 7.9 percent, which reflected 133,860 square feet of vacant space including 44,210 square feet added during the quarter.
Maui's retail vacancy rate was 6.3 percent, reflecting 144,814 square feet of vacant space including 13,121 square feet added during the quarter.