According to CBRE numbers, the market’s vacancy rate remained unchanged at 12.2% and the total availability rate similarly only decreased nominally to 13.5%. The greatest third quarter gains in occupancy occurred in the West Honolulu submarket, according to CBRE, where 31,788 square feet of positive absorption was recorded.

CBRE numbers show asking rates at an average of $2.85 per square foot. And the report says it expects that average asking lease rates have reached something of a plateau that will be maintained for the remainder of 2010 as fundamentals continue to stabilize.

Like Hawaii Commercial Real Estate, CBRE’s report points out that “lease economics are still favoring the occupier side, and offers for tenant incentives such as free rent, remain commonplace.” The report continues that “Landlords continue to be focused on retaining tenants and maintaining occupancy levels rather than increasing lease rates to stabilize their assets.”

More Vacancy on the Horizon

With job growth forecast to be flat, and most businesses relentless about reducing costs including rent, we expect that vacancy will continue to increase for the next several quarters, says Hawaii Commercial Real Estate.

According to the report, space being vacated downtown in the fourth quarter includes: Morgan Stanley Smith Barney will vacate 20,000 square feet at Alii Place when they consolidate their operations at Pacific Guardian Center, Envision Networked Solutions will vacate about 10,000 square feet at 1000 Bishop as it consolidates its office and warehouse outside of downtown, Kiewit will vacate a floor at Harbor Court when it moves to Iwilei, KPMG will be downsizing by about 10,000 square feet, and a temporary film production company is vacating about 25,000 square feet at One South King Street.
Outside of downtown, Bank of Hawaii will be putting up to 40,000 square feet of space on the market in Kapolei, and DFS will be vacating about 35,000 square feet at Waikiki Trade Center in 2nd quarter of 2011. On a bright note, according to the report, several very small startup firms leased space at Pacific Guardian Center.

Many Options for Tenants

Hawaii Commercial Real Estate’s index of available spaces increased to 636 spaces across the island. Except for very large spaces, tenants generally have multiple options which can force landlords to compete for their tenancy. The result has been significant landlord concessions for tenants willing to move, including lower base rent or free base rent, smaller annual rent increases, and improvement allowances, the report says. However, “moving and tenant improvement expenses are still so high that paying an existing landlord a higher rate can sometimes be cheaper than moving,” the report says. “And, for tenants willing to limit their improvement requirements some landlords are willing to cut better deals.”

Lastly, the report notes that many tenants are looking seriously at owning their own space even though the initial mortgage payments may be higher than comparable rents. “The trick is arranging financing and negotiating a purchase price that will be at or below the appraisal value.”