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.
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. as businesses adjusted for the effects of COVID. However, by the end of 2021, that number shifted to a
2020-2021 Net Absorption Rates
The total new square footage leased by tenants, minus the square footage no longer occupied.
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
| ||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.