Hawaii has never been a cheap place to do business. Any strategy that helps reduce overhead is a welcome one for business owners and operators in the Aloha State.

 

With warehouses on all four major islands, including two on the Big Island, we keep close tabs on the cost of industrial space in Hawaii. Additionally, we’re always looking for ways to help our customers increase efficiency and reduce expenses.

 

To help you manage your warehouse costs in Hawaii, we’ve put together an update on the Hawaii industrial real estate market, including stats about Oahu, Maui, Kauai, and the Big Island. We’ll also share two cost-saving strategies that can help Hawaii-based businesses reduce warehouse costs.

Let’s start with a look at the current state of the Hawaii industrial real estate market.

Beautiful overview of Pearl Harbor

2020 was a tough year for a number of businesses, and the fallout from the pandemic was reflected in Hawaii’s industrial real estate market. According to CBRE’s Hawaii Market Outlook 2022, in 2020, the state saw a negative net absorption of 220,000 square feet of industrial space, suggesting declining demand as businesses adjusted for the effects of COVID. However, by the end of 2021, that number shifted to a positive net absorption of 464,561 square feet, indicating a renewed interest in industrial space.

 

2020-2021 Net Absorption Rates
The total new square footage leased by tenants, minus the square footage no longer occupied.

(Source)

That trend continued into 2022, in which the market for industrial real estate in Hawaii continued to tighten:  

  • At the close of 2021, CBRE reported the year-end availability rate at 4.2%.  
  • By Q3 of 2022, that rate had dropped to 3.7%, and much of the available industrial product was “undesirable,” according CBRE’s Hawaii Industrial Figures Q3 2022 report.  

2021-2022 Industrial Real Estate Availability 

(Sources: 1, 2)

On Oahu, industrial real estate availability has become even more limited. Colliers reported that the Oahu vacancy rate fell to 1.38% in Q2 of 2022, the lowest in recorded history. In Q3, that rate went even lower: 1.22%—another historic low. Additionally, while Colliers noted greatest demand from small industrial businesses, listings under 7,500 square feet were extremely hard to come by, with only 40 listings available at the time the Q3 report was published.

 

In other words, across the state, there are fewer and fewer industrial properties available. And those that are available aren’t terribly attractive or useful to the majority of businesses.

 

As a result, you might not be surprised to hear that average industrial rents rose from 2021-2022. At the end of 2021, CBRE reported average net asking lease rents of $1.26/SF across the state. By Q2 of 2022, that had risen to $1.35/SF. However, by Q3, that number dropped to $1.31/SF—a slight decline, but still a $0.05 increase from 2021’s year-end average.

 

As you can see from the chart below, the 2022 increases were largely confined to Oahu. (71% of the state’s total industrial inventory is located on Oahu—39 million out of 55 million square feet.) Given the low vacancy numbers on the island, the rent increase isn’t surprising.

 

2021-2022 Net Average Asking Rents

(Sources: 1, 2)

2021 Average Monthly Rent per Sqft Q3 2022 Average Monthly Rent per Sqft
Statewide $1.26  $1.31 
Oahu $1.26  $1.31 
Maui $1.35  $1.35
Big Island $1.13 $1.13 
Kauai $1.11 $1.06

Whereas other markets, notably Southern California, have seen skyrocketing industrial rents, it’s possible that the industrial real estate market in Hawaii is stabilizing. Although vacancy numbers are low, the National Association of Realtors also reported that demand is also lower in Urban Honolulu, as compared to nationwide numbers.

 

Even as Hawaii’s rents remain relatively stable (with slight rises on Oahu and slight dips on Kauai), there are a couple of factors to monitor where industrial real estate in Hawaii is concerned:

  • As construction prices continue to increase, new developments will be fewer and farther between, which could mean additional future pressure on the industrial real estate market.
  • As some areas shift from industrial to residential—Oahu’s Kakaako, for example—some areas could see shake-ups and diminishing industrial stock. This is especially true as housing demand rises across the state.
  • Large, national companies, including Costco and Amazon, made some significant transactions in 2021, purchasing land for $130 million and $76 million respectively. Additional transactions like these could impact the market going forward.

If you’re facing potential warehouse rent increases, you might be looking for solutions. And even if you’re not anticipating an increase, given the cost of operating a Hawaii-based business, any solutions to lower your expenses can only increase your margins.

 

Where your warehouse costs are concerned, we have two strategies for you to consider.

cargo boxes storing at warehouse shelves

Reduce Your Warehouse Costs in Hawaii: Two Solutions

Our logistics experts focus on creating efficiencies that lower costs all along your supply chain. We’ve specialized in Pacific freight since 1991, so we’ve accumulated a significant body of knowledge—and cost-saving logistics solutions—in Jones Act lanes.

Where warehousing costs in Hawaii are concerned, we have two suggestions:

#1: Ship Direct to Neighbor Islands

With Oahu industrial space in higher demand and rents on the rise, anything you can do to minimize your footprint on Oahu has the potential to save you money. For that reason, if you’re sending freight to neighbor islands, we suggest you consider shipping direct to Maui, the Big Island, or Kauai.

 

There are two major approaches to sending freight to Hawaii’s neighboring islands:

  1. Send everything to a central warehouse on Oahu, sort and segregate your freight there, and then truck it back to the port for barge service to Maui, Kauai, Hilo, or Kona.
  2. Leverage direct service to send cargo straight to Maui, Kauai, Hilo, or Kona.

Strategy #1 requires a warehouse space large enough to accommodate all of your freight—and room to sort, segregate, and palletize it. However, under strategy #2, your warehouse only has to hold your Oahu freight. This could allow you to reduce your footprint—and realize some savings.

 

But what if you only do business on Oahu? This second strategy can still save you warehouse space—and money.

#2: Ship Direct to Stores

Several of our clients run retail operations in Hawaii. Rather than operating a central warehouse to receive, sort and segregate, and then deliver freight to their individual stores, our clients’ freight goes straight to their stores, skipping the warehouse entirely. This strategy has enabled our clients to reduce their footprint—and, in some cases, completely eliminate the need for a central warehouse.

Here’s how it could work for your business:

  1. We receive your freight at our City of Industry terminal in Los Angeles, CA.
  2. We sort, segregate, and palletize your freight, according to each store’s inventory needs.
  3. We load your freight in a container bound for the right island—Oahu, Maui, the Big Island, or Kauai.
  4. In Hawaii, we receive the container at one of our five Hawaii terminals, unload your freight, and then deliver it directly to each of your stores.

As you can see, this strategy can lower your reliance on a large, central warehouse in Hawaii, which has the potential to save you money and streamline your operations.

Want to Talk More About Optimizing Your Hawaii Logistics?

These are just two of the strategies our Hawaii freight experts have at their disposal. We’d be happy to sit down with you and take a holistic look at your entire supply chain to uncover new efficiencies and help you save even more on your logistics.

 

To get started, just schedule a complimentary consultation. One of our Hawaii freight experts will be in touch!

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