Brokerage Outlook: Hawaii


• Honolulu Industrial

• Honolulu Office

• Honolulu Retail

Honolulu Retail Mosher-Cates Submitted by Molly Mosher-Cates, principal broker with the Kailua, Hawaii, office of Sperry Van Ness/MC Realty Advisors. Posted 08/03/07. What area is your expertise? • My primary focus is on the island of Oahu, Hawaii. I have also included some information for the island of Maui, Hawaii. What trends do you see presently in retail development in your area? • Rent is up, vacancy is down and 3 million square feet of new retail is planned by 2009 on the island of Oahu. This represents a 25 percent increase in retail inventory. What type of retail product is doing well in your area? • With over 7 million tourists each year visiting Hawaii, local merchandise does well. High-end retail has suffered from the reduced visitor count from Japan. What retailers are new to your area? • Target has recently announced they are looking at both Kapolei (the second city) and the former Costco location in Salt Lake. In addition Nordstrom will open their first store in early 2008. The Nordstrom store will be approximately 200,000 square feet and will be adjacent to Ala Moana Shopping Center. Walgreens and Whole Foods Market are also expected to open their first store within a year. Who are the active retail developers in your area? • General Growth with Ala Moana Shopping Center and Ward Centers, The McNaughton Group in Kapolei, and the Festival Companies in Waikiki are all active in our area. Please name one or two significant retail developments in your area. What impact will these projects have on the market? • One of the most significant developments is in Waikiki where Waikiki Beach Walk, Lewers and Beach Walk intersect with Kalakaua Ave. The owner, Outrigger Enterprises, has completed Phase I of the $535 million project with over 46 new retail stores and restaurants in the 8-acre development. Most of the new stores in the Waikiki Beach Walk opened in the first 4 months of 2007. Waikiki Beach Restaurants include Roy’s Waikiki, Ruth’s Chris Steakhouse, Yard House, Molokai Grill, Giovanni Pastrami, Kai-Wa and Taormina Sicilian Cuisine. • Phase II of the project includes the Trump Tower scheduled for completion in 2009. The condo portion of the tower sold out in one day with $700 million in sales. • Another Waikiki redevelopment project is the Royal Hawaiian Shopping Center consisting of 293,000 square feet and three city blocks on Kalakaua Ave. in Waikiki. This is the first major renovation since it was built in 1979. The owner, Kamehameha Schools, and developer, The Festival Companies, are completing an $84 million facelift with over 100 new stores and restaurants. Tenants will include Fendi, Hermés, Salvatore Ferragamo, Cartier, Bvlgari, Kaimana Kea Rolex Store, Tourneau, Kate Spade, L'Occitane, Furla, LeSportsac, Hilo Hattie, Pacific Harley-Davidson, Island Snow, Sunglass Hut, Crazy Shirts, Philip Rickard Honolulu jewelry, Allure Swimwear, Princesse Tam Tam Lingerie, Señor Frog's Restaurant and Bar, Señor Frog's Retail Store, Beijing Chinese Seafood, Restaurant Suntory and The Cheesecake Factory. Where is the majority of development taking place? Why is this area doing well? • Retail development is occurring primarily in Waikiki, Kakaako and Kapolei on the island of Oahu. Waikiki is getting a makeover with the Waikiki Beach Walk project and the Royal Hawaiian Shopping Center renovation. General Growth has a $100 million project called Ward Village Shops in Kakaako. The second city, Kapolei, has 10,000 new homes projected over the next ten years. What area do you expect to be the next big retail development market? Why? • There are 1.6 million square feet of new retail under consideration on the island of Maui, which would add 60 percent to the current retail inventory. There has been a lot of resort and residential development on the island of Maui and great demand for retail. Average retail rent is at $3.70 per square foot with 4 percent to 6 percent vacancy. Please describe the retail leasing activity in your area. • High demand for quality locations. What major leases have been closed recently? • Whole Foods Market announced they will open their first store in Hawaii in early 2008 at Kahala Mall at the 26,000-square-foot site of the former Star Market. Also planned is a 67,000-square-foot Whole Foods Market store at General Growth Properties’ Ward Village Shops in Kakaako. That development has been delayed due to the discovery of ancient Hawaiian bones at the site. Please give a measure of retail vacancy rates and a measure of available sublease space. • Retail vacancy rates on the island of Oahu are running approximately 2 percent to 3 percent. Base rent averages $3.00 to $4.00 per square foot per month. The exception is Waikiki at $15.00 per square foot per month. What types of retailers should look into your market in the coming year? What type of retail is needed? • Many retailers were reluctant to come to Hawaii because of the additional cost involved. We’ve made progress in overcoming that perception as many retailers report Hawaii stores with the highest grossing sales per square foot. Many islanders are excited about the expected arrival of Target and Walgreens to Hawaii. An island favorite when visiting the mainland is Trader Joe’s. Would you like to make any additional observations about the retail market in your area? • The total population of the State of Hawaii is 1.3 million. Tourism adds another 7.4 million visitors to the islands. Local communities continue to express resistance to big-box retailers as many of the local mom-and-pop stores continue to close. The Kauai County Council recently voted to limit the size of retail stores to not more than 75,000 square feet to preserve the rural character of Kauai and effectively averting a Wal-Mart Supercenter, planned to be the first in the state. Wal-Mart previously submitted plans to expand their Kauai store from 119,000 square feet to 215,000 square feet. Wal-mart purchases over $150 million worth of local goods in the islands.

Honolulu Industrial Submitted by Mike Hamasu, director of consulting and research with Honolulu, Hawaii-based Colliers Monroe Friedlander, Inc. click here to see charts What area is your expertise? · Honolulu What trends do you see presently in industrial development in your area? · Tight market conditions continue to persist as vacancy rates have remained below 2 percent for the past year. Construction activity is on the rise with speculative development underway. Having spiked in late 2004, rents remain historically high averaging 96 cents per square foot, per month, throughout the year. What type of industrial product is doing well in your area? · Following a frenzy in industrial land parcel sales, construction activity had been predominantly owner-user/design build. Industrial condominium projects are providing much-needed speculative product to our severely supply-constrained market. Who are the active industrial developers in your area? · In addition to local developers, we are seeing the impact of Mainland U.S. (principally Southern California) developers entering our marketplace. Please name one or two significant industrial developments in your area What impact will these projects have on the market? · More than 600,000 square feet of speculative industrial condominium developments are underway. It is anticipated that these projects will be marketed over the course of the next 2 years. Despite these developments, Colliers Monroe Friedlander forecasts that vacancy and rents will likely remain at current levels as most of these projects will be quickly absorbed. Where is the majority of development taking place? Why is this area doing well? · The development is principally occurring in West Oahu where Kapolei, Campbell Industrial and Kenai Industrial parks are located. The lower cost of vacant land is the principal factor for the growth in development in this area. What area do you expect to be the next big industrial development market? Why? · We believe that the cost of industrial land and the lengthy entitlement process will slow the pace of development. There is a potential for marked growth to continue to occur in the Kapolei/West Oahu industrial markets over the near and mid-term. Please describe the industrial leasing activity in your area. · Almost non-existent, the direct result of the reduction in the number of available warehouse properties to lease. In fact, over the past 3 years, the number of listings and the volume of available square footage for lease fell by more than 50 percent. Please describe the industrial sales activity in your area. · The lack of available space for lease and the low interest rate environment spurred increased interest in the purchase of industrial properties by both investors and owner-users. Many in-fill properties are being quickly snapped up as the alternatives for company expansion space become limited. Please give a measure of industrial vacancy rates. Please give a measure of available sublease space. · Currently year-end 2005 vacancy rate is 1.8 percent. Sublease space is not a factor in this market. What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in 2006? · As mentioned previously, the low interest rate environment helped to spur sales of industrial properties in addition to vacant land sales. A rise in interest rates, coupled with the continued increase in land and construction costs, will help to curb the current rash of industrial development. What industries do you expect to expand in 2006 to absorb a great deal of industrial space? What areas will be affected? · Construction-related companies, tourism and retail-related sectors will benefit from the continued growth in the Hawaiian economy. Would you like to make any additional observations about the industrial market in your area? · We believe the Honolulu industrial market will continue to reflect the healthy economy with growth and absorption. Over the next 2 years, construction activity will boost the industrial inventory by more than 1million square feet, a significant amount to absorb in this 34 million-square-foot marketplace. Vacancy rates will not rise significantly and rental rates will not fall due to the tremendous amount of pent-up demand for expansion space by Honolulu's industrial companies.

Honolulu Office Submitted by Mike Hamasu, director of consulting and research with Honolulu, Hawaii-based Colliers Monroe Friedlander, Inc. click here to see charts What area is your expertise? · Honolulu What trends do you see presently in office development in your area? · Currently, office development is not financially feasible. As a result, there are no planned or proposed developments. Who are the active office developers in your area? · None. Many of the potential office development sites have been secured by residential high-rise developers. This trend is in response to the tremendous interest in residential condominiums by both local and mainland buyers. Where is the majority of development taking place? Why is this area doing well? · High-rise residential condominium development has taken a significant amount of the BMX-3/BMX-4 zoned land. (This zoning allows for office, retail and residential development). Most of these developments are concentrated in the area between Kapiolani Corridor and Ala Moana Boulevard. More than 3,000 condo units will be built in the next year or two. · These locations afford condominium buyers with excellent views of both the ocean and the mountains. What area do you expect to be the next big development market? Why? · Office development is not likely to happen in the CBD or Kapiolani Corridor markets any time soon. Significant activity is being planned and proposed for office and commercial growth in the Kapolei and West Oahu markets. Office development should occur within the next 3 to 5 years. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? · Overall, the entire office market posted solid growth and absorption over the past 3 years. The suburban markets of East Oahu and Leeward Oahu recorded the lowest vacancy rates on the island, this is a direct result of the desire for many employers to locate close to their labor pools and reduce the time employees are caught in commute traffic. · The Kapiolani Corridor market continues to generate low vacancy rates and benefit from the central location between Waikiki and downtown Honolulu. Please give a measure of office vacancy rates. Please give a measure of available sublease space. · The overall Oahu office market vacancy rate fell below 10 percent at mid-year 2005 and is projected to continue to decrease to below 9 percent by the end of 2006. Absorption remains positive and many firms are expanding to meet increased business generated from the solid economy. What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in 2006? · The office condominium market benefited from the low interest rate environment as 1100 Alakea, now renamed Alakea Corporate Towers converted itself into an office condominium. Within a year, all the units have been sold at this office condo conversion. Investment activity has been brisk for office properties. Both The Shidler Group and Douglas Emmett expanded their presence in the office sector by purchasing several premier office buildings. This reflects the growing national trend of increased interest expressed by institutional money for commercial real estate. · Beyond increased purchase and holding costs for investors, the increase in interest rates should not impact the office market in Honolulu significantly. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? · Job growth has direct bearing on the office market. Honolulu posted significant office sector job growth, which resulted in more than 500,000 square feet of net absorption over the past 3 years. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in 2006 to absorb a great deal of office space? What areas will be affected? · Principally, the majority of the growth has occurred among existing companies that have expanded. Several new large tenants that leased space in Honolulu are related to the growing bio-life sciences field and defense- and military-related entities. Would you like to make any additional observations about the office market in your area? · The office market will continue to post solid absorption over the near term. Hawaii's current economic success -- low unemployment and rising wages -- has already begun to impact many companies' ability to hire new staff. Positions requiring experience or technical skills are increasingly difficult to fill due to the shortfall of available labor pool. Wage inflation will become a pivotal factor in the future.