CBRE Hawaii Releases Q4 2021 Industrial Results
Industrial reinforced it’s position as the top class of commercial real estate in Hawaii, finishing 2021 with a healthy 464,561 SF of absorption statewide and $1.26 PSF/mo net average asking rent. According to CBRE, who compiles the reporting each quarter, vacancy finished the year at 4.2% as compared to 3.7% at the end of 2020. Oahu contributed the most to state-wide vacancy at 5.2%, followed by Big Island at 2.9% and Maui at 1.6%. Lack of availability on Maui specifically, helped to push average asking rents to $1.35 PSF/mo from $1.27 PSF/mo a year earlier. The Big Island continues a nice trend of rent growth in recent years, climbing from $1.05 PSF/mo in 2020 to $1.13 PSF/mo at the end of this year.
Dynamics supporting industrial growth remain in tact since the onset of COVID. First off, the explosion of ecommerce activity has never been stronger. More recently, the impact of supply chain disruptions has played an interesting role in shaping industrial space use. The Costco land purchase is a perfect example. Expansion of local distribution and further support of e-commerce efforts were two of the reasons supporting their planned mega distribution center development in Kapolei.
CBRE’s report included an interesting note that construction wages are expected to increase 3.4% per year over the next 5 years. Wage support in Hawaii’s second largest industry (after tourism) doesn’t necessarily make development easier, but does create a trickle down spending effect for those receiving higher pay. Should the same trend emerge in hospitality, which I would expect to see, Hawaii’s residents could be in for a corresponding bump in standard of living. All this could ultimately circle back to, you guessed it, more demand for industrial space to house the things that people want to buy.
On a final note, Hawaii’s average asking rents for industrial properties bottomed out in 2012 at $0.95 PSF/mo. At the peak in early 2008, prior to the start of the GFR, statewide rents were just shy of $1.30 PSF/mo. Zooming out to the past 13 years, rents peak at $1.30 in 2008, dropped to $0.95 in 2012 and is now brushing up on previous highs in 2021 at $1.26. In the Q4 report, CBRE underscored the trend I’ve been following very closely, which is the near ZERO availability of new developable industrial land for quite some time. Colliers recently pegged it at 2 - 4 years. With inflation roaring along at a 7% annual clip with no signs of slowing, it’s conceivable, rents in the coming year will not only surpass the prior rent peaks, but eclipse it by a long shot. Pent up travel and spending demand, lack of land for development and sky-high construction costs prohibiting new vertical development will only support this thesis across all of Hawaii’s major markets for many years ahead. Let’s just hope the Fed doesn’t kill the party too quickly with their current aggressive rate hike talk.