Warehouse demand on Oahu stays strong despite pandemic

Original Article

While businesses want to be close to urban Honolulu — hence the $125 million freight Amazon paid for its land adjacent to the harbor — more and more are wanting warehouse space with docks and room for large trucks to maneuver, which is not always available in urban core industrial neighborhoods such as Kalihi, Kapalama or even Sand Island.

That isn’t to say there aren’t warehouses with docks — there are “situations that people retrofitted over time, but never designed to receive containers,” said Keane Omaye-Backman of CBRE’s industrial leasing team. “Anything with docks is so sought-after in town.”

“The urban core is hard – you’ve got an aging product, a lack of availability and fee-simple prices,” said Jay Elicker, senior vice president at Commercial Asset Advisors.

“It’s starting to get expensive in town.”

And demand for that space is still high, even during the Covid-19 pandemic. Oahu’s industrial vacancy rate was around 3% during the third quarter, higher than the recent lows of around 2% but still well below 5%, what the industry would call a healthy market.

“Leasing activity is brisk, I just signed five leases this week,” Elicker said last week. “They’re not building it fast enough to supply and over supply the market.”

One of the factors that drove up the vacancy rate last quarter was the addition of two new projects with more than 450,000 square feet of new warehouse space in Kapolei — the Hanua Distribution Center, a 226,800-square-foot high-cube warehouse developed by Thomas Sorensen, owner of Inspiration Hawaii, and the Malakole Industrial Park developed by Nan Inc. with 229,140 square feet of space in 17 warehouse buildings that is being marketed for lease to local and national businesses that need as little as 1,200 square feet or as much as an entire building of 22,000 square feet or a secured yard.

Elicker noted he has one client planning to build 25,000 square feet for their own use, while another client plans to build a 100,000-square-foot building and lease a portion of it out. Two other clients plan to each build 50,000 spec warehouses.

“We still have a shortage of supply,” he said.

The new buildings are designed to the new standards, with 40-foot heights, dock loaded, with ample parking, technology-driven smart buildings, he said.

“You’re going to start to see that in addition to the existing product,” Elicker said.

Prices for lots in Kapolei Business Park West have been selling for between $42 per square foot and $45 per square foot, a new high for vacant industrial land in Kapolei.

“You still pay a premium in Kapolei for quality regardless of how far away it is from Honolulu,” Omaye-Backman said.