A sharp decline in office leasing during the second half of last year halted four years of growth for office space demand on O'ahu, and more weakness is expected this year, according to a new report.

An exodus of office tenants added about 122,000 square feet of vacant space to the market — the rough equivalent of a 12-story building — in the last six months of 2007 to nudge office vacancies off a 15-year low at midyear.

The report by local commercial real estate firm Colliers Monroe Friedlander said the continuing slowdown in Hawai'i home sales coupled with the subprime lending meltdown that closed several mortgage firms stalled the office market's strong momentum.

"The whole subprime credit situation caught us off guard, and that's reflected in the fairly rapid turnaround in the office sector here," said Mike Hamasu, director of consulting and research for Colliers Monroe Friedlander. "It's a fairly dramatic change in market conditions."

Last year came up just shy of being the fifth consecutive year for a net increase in O'ahu office space use. Roughly between 200,000 and 250,000 square feet of vacant space was filled annually from 2003 to 2006.

During the first half of last year, another 112,000 square feet of space was filled, Colliers reported. But by the end of last year, there was 9,578 square feet more vacant space than at the start of the year, moving the vacancy rate up slightly to 7.2 percent from 7 percent at the end of 2006.

Despite the weakness, the average full-service gross rent that landlords asked for vacant space rose during the year to $2.76 per square foot per month, up from $2.59 in the prior year.

Also, Colliers said landlords were still cutting back on incentive offers for tenants to sign leases, including periods of free rent or allowances to improve interior space.

This year, Colliers expects that shakiness in the Mainland economy will rub off on Hawai'i to result in more O'ahu office space being emptied than filled.

By the end of the year, Hamasu said he expects the vacancy rate to be closer to 8 percent than 7 percent.

But Colliers also said it expects landlords to keep seeking more rent for new leases, with a projected average increase of 6 percent to 8 percent, or about 16 cents to 22 cents per square foot per month.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.