Long-running pain in Oahu’s office leasing market is forecast to reach a new peak by the end of this year.
A recent report by local commercial real estate firm Colliers International projects that the vacancy rate for office space on the island will reach 14 percent and eclipse a 20-year-old record of 13.7 percent.
Meanwhile, another company tracking the market said vacancies at higher-quality office buildings within downtown Honolulu already hit an all-time high in the middle of this year.
CBRE, a Colliers competitor, indicated in a recent
report that the downtown office vacancy rate was at 19.4 percent at the end of June, which broke a prior
record of 18.7 percent at the end of 2017.
Both companies in their
reports said employment has been weak in economic sectors heavy on office workers, which runs counter to a broad trend of job growth and exceptionally low unemployment that has helped expand a strong Hawaii economy.
“Office-using employment has been virtually unchanged for the past several years,” the CBRE report said.
The Colliers report cited a loss of 2,700 jobs in the professional and business services sectors which more than offset 1,000 additional jobs in the information technology and financial services sectors between March 2016 and March 2018.
As a result, office building owners have been challenged.
CBRE said some office building landlords are compensating for reduced tenant rental income by increasing parking rates. The company said downtown parking runs as high as
$427 a month, up 8.1 percent from last year.
Both reports said some building owners are considering or planning to convert their properties to other uses that include housing.
For example, California developer Salem Partners plans to build a hotel and condominium tower to replace the former Heald College building at 1500 Kapiolani Blvd. In Kakaako, Texas-based developer Howard Hughes Corp. closed its Ward Plaza office complex at 210 Ward Ave. last year because of maintenance expenses even though redevelopment for residential tower use is far off.
CBRE said such conversions will curb a growing
vacancy rate. However,
Colliers said the loss of
office properties to conversions shouldn’t reverse market weakness this year.
Part of the Colliers
projection for Oahu’s office vacancy rate to hit a record
14 percent by the end of the year is a plan by American Savings Bank to move its roughly 600 employees into a new tower it is building near Aala Park downtown.
The bank’s move is expected by year’s end. American Savings occupies several downtown office properties now, including some it owns, but the move will push up
vacancies for office space available for lease, Colliers said in its report.
Oahu’s office vacancy rate rose to 13.1 percent at the end of June from 12.8 percent at the end of 2017 because 52,687 square feet more space was made empty than filled in the first half of this year, Colliers said.
A 13 percent vacancy represents 1.9 million square feet of empty space out of 14.6 million square feet in the market.
Colliers and CBRE both survey the office market but have different criteria.
CBRE counts only the two highest-quality classes of buildings, while Colliers counts those two plus a third class. CBRE also excludes buildings under 40,000 square feet downtown. Colliers includes buildings over 20,000 square feet.
Because of the differences, CBRE reports Oahu’s office vacancy rate at
15.6 percent, representing 1.8 million square feet of vacant space out of 11.2 million square feet.
Colliers puts the downtown office vacancy rate
2.5 percentage points below CBRE’s calculation — at
16.9 percent at the end of June and considerably short of its recorded 19.6 percent high, reached in 1996 when a tower for First Hawaiian Bank was completed.
