A leading commercial real estate firm says 2018 was a good year for the sector in Hawai‘i. And this year is likely to be one of change.
In its review of 2018, commercial real estate broker CBRE notes that the office, industrial, retail and investment sectors each saw gains.
In the office space category, for example, Oahu ended the year with a vacancy rate of 13.7 percent, an improvement over the previous year’s 14.3 percent vacancy rate. It’s the first time since 2013 that vacancy rates declined. Looking ahead, the office market could drop to as low as 10 percent vacant and that’s because an entire high rise is undergoing a big change. Douglas Emmett Inc. announced recently that it is converting 1132 Bishop Street from offices to residential space. The building will be home to 500 workforce rental units.
Tenants are already moving out as their leases come up. For example, Atlas Insurance Agency just vacated 32,000 square feet of the building to move to City Financial Tower.
Vacancy rates are lower in the retail sector as well. This is due to both growing visitor spending and landlords who are getting creative with empty big-boxes that once housed Kmarts or Sports Authorities. These large buildings are being subdivided and leased to lifestyle businesses such as gyms or medical offices.
The CBRE report notes that nothing has entered the Hawaii market to replace the Sports Authority category. The business model of big boxes hinges on efficiencies in distribution, meaning that a given brand would want to jump in with multiple locations. Right now, Hawaii may offer enough customers, but not enough efficiencies in labor and distribution to make it work.