New space, Covid push Oahu industrial vacancy rate to 7-year high

Original Article

Oahu’s industrial market vacancy rate hit a seven-year high of 2.82% in the third quarter, mainly due to the addition of more than 450,000 square feet of new warehouse space, but the economic fallout from the Covid-19 pandemic is expected to push vacancy rates higher into next year, according to a new market report from Colliers International Hawaii.

The industrial market, which has hovered at or below 2% in recent years — 1.88% in the second quarter — lost a total of 392,704 square feet of occupied space in the third quarter. Combined with second-quarter net absorption of positive 63,655 square feet, the third quarter pushed year-to-date net absorption to a negative 329,049 square feet by Sept. 30. Colliers forecasts Oahu’s industrial vacancy rate to fluctuate between 2.5% and 3% by the end of this year and into the first half of 2021.

The additional space on the market is attributed to the completion of the 226,800-square-foot warehouse at 91-150 Hanua St. by Thomas Sorensen and Nan Inc.’s 231,836-square-foot at 91-150 Malakole St., a total of 458,636 square feet, Colliers said . Just 65,000 square feet of that new space was pre-leased – leaving 395,000 square feet of vacancy.

Colliers also reports average industrial rental rates increased by 5% in the third quarter to $1.27 per square foot per month, from $1.21 per square foot per month, again attributing some of the increase to the new projects, which were priced at $1.40 per square foot per month or more.

But while the new space played a big role in the third quarter, the effects from the Covid-19 closures are not far behind.

Colliers noted the wholesale industry on Oahu lost 700 jobs over the past year as companies trimmed payrolls, but then lost further business when the Covid-19 pandemic shut down their hotel, retail and restaurant customers. Year-to-date June wholesale sales volume dropped by 5.5%, or $300 million, compared to the same period in 2019, the report said.

On the positive side, the construction sector added 1,600 positions since August 2019, and contracting sales grew 18.6% for the first half of the year, representing an additional $540 million in sales.

Colliers also developed an industrial sector scorecard to show how Covid-19 is affecting industrial businesses, combining a survey of brokers’ opinions with such economic factors as the job market and sales activity.

In total, the industrial sector averaged slightly negative for the optimism score, which Colliers said “illustrates the doubt that exists regarding the near-term start of an economic recovery.”

However, despite that, “Colliers remains positive about the speed of recovery and the post-Covid-19 outlook.