Amazon Strikes Again on Oahu
Oahu has seen an incredible run of massive e-commerce related land sale activity in the last 2 years. It all started with Amazon’s mid-2020 purchase of 14.45 acres of land on Sand Island for $125 million or nearly $200 psf. Amidst the speculation of what Amazon might actually build on the site, along came Costco, not to be outdone by it’s behemoth retail counterpart, purchasing the 45-acre Ho’opili Business Park for a stunning $130.1mm or $66 psf. The deal closed in January 2022 at a psf price more commonly seen with small industrial land sales. Perhaps motivated, encouraged or clearly seeing opportunity the rest of us are missing, Amazon quickly struck again on Oahu a short month later, this time in Kapolei, with a 49-acre land purchase from James Campbell for $76mm or $35 psf. With no comment from the company, one can only speculate another distribution center is in the cards. And with Jeff Bezos now a proud owner of a trophy beachfront property on Maui, the Chairman can keep closer tabs on his growing Hawaii e-commerce empire.
To see this volume of large land purchases in such a compressed period of time re-emphasizes the importance of logistics, supply chain and inventory management for e-commerce retailers. COVID really did super charge one of the biggest commercial real themes of recent years. Amazon already owns the market, making its Hawaii foray very interesting. Costco wanted to make a push into the e-commerce market in a major way, while expanding its local brick-and-mortar presence in Hawaii. Typically, when massive e-commerce facilities are built, smaller related companies like packagers and importers, locate nearby, creating an ecosystem of e-commerce activity in concentrated areas. With the two biggest names in the business planting flags in the same market, you would think more e-commerce business will eventually fill more industrial in the area, available land and space permitting.
For a smaller market like Hawaii, Amazon wouldn’t build two large facilities so close to each other without some sort of synergy in mind. I suspect the Sand Island site will be the home of last-mile delivery, closest to Hawaii’s largest population base and adjacent to the main logistical hubs of Honolulu Harbor and Honolulu International Airport. Kapolei is a bigger parcel, further away from town for trucking deliveries and likely to be a more distribution-like facility, meant for longer-term storage use and feeding the Sand Island site and other possible transportation hubs.
With Amazon and Costco investing so heavily into West Oahu, the next part of the conversation leads to logistics. Trucking goods to and from Honolulu harbor is simple enough, but might there be a bigger play with the Barbers Point transport hub of Kalaeloa? There’s long been speculation of a deep water alternative harbor to Honolulu and gearing up the small plane airport to run more cargo. It would be the perfect launching point for the larger outer island markets like Maui and the Big Island where Amazon is rumored to be looking for land for smaller facility development. Soon you might seen Amazon move out of its leased space with Aloha Air Cargo and into it’s own dedicated facility with a small fleet of contracted drivers like they typically employ in more robust mainland markets.
All this activity didn’t take long to put West Oahu into a major industrial land crunch situation. After the Costco announcement, which wiped out the only small industrial business park on the horizon, Colliers commented that it could be as much a 2 - 4 years until Oahu sees more parcels developed. Until then, warehouse inventory will remain extremely low (and obsolete for most markets outside of West Oahu), paving the way for much higher rents. Naturally, more supply would be developed when vacancy dips below 2% and rates are climbing. But with construction costs firmly apart of the 7.5% YOY runaway inflation train and zero land available, the only force I see tempering rent growth is a possible recession once rates choke off growth and reverse the insane asset value explosion seen since April 2020.