Costco Distribution Center Coming to Oahu
As reported by PBN on January 12th, 2022, Costco will be acquiring the 45-acre Ho’opili Business Park from Jupiter Holdings, LLC for $130mm. The purchase comes a little more than 2 years after Jupiter purchased the land from DR Horton for $21.5mm.
Prior to this news, Jupiter was proceeding with the development of Ho’opili Business Park, a 32 lot subdivision with parcels in the size range of half acre up to 3+ acres. The sale is a massive return for Jupiter who has effectively "sold out” in one swoop it’s entire inventory, along with the majority of anticipated small commercial lot inventory coming to the island in the near future. It’s likely Jupiter already installed infrastructure for the project and will need more to service the Costco development, but the profit will still be at such an incredible scale to promote more industrial subdivisions as soon as practically feasible. Jupiter already purchased 123 acres of industrial land in Royal Kunia back in Nov ‘21 for such a purpose.
At $130mm, the price per foot comes out to $68. Based on recent commercial property sale comps in the Koa Ridge project, up the road in Waipio, I was guessing the land cost psf of the lot sales would be somewhere in $80 psf range, which is a major number for West Oahu, historically speaking.
Costco effectively “paid up” for the land as evidenced by the price psf paid for such a massive parcel. Typically land cost psf goes down the bigger the parcel. Assuming Jupiter likely had strong interest in the small lot sales (myself included), they clearly pushed Costco in this transaction, knowing the buyer was bullish on the concept of a distribution center and the future of their business prospects in this market. To close at this price is a clear demonstration of Costco’s commitment to Hawaii, where stores like Iwiliei and Kahului are regularly some of their top producing in the nation.
Two pieces of info are worth discussing in more detail. First off, the land will be developed into a statewide distribution center to service it’s existing 7-store retail portfolio across the 4 major islands. On Maui, it’s a rare day to see anything less than 50 or so 40-foot containers sitting in the store parking lot waiting for unloading. A local distribution center on Oahu will surely ease up this log-jam and allow for quicker re-stocking of the items people love most. No more guesswork on the availability of soft-tops or beach chairs for your upcoming Hawaii vacation.
The development also supports Costco’s growing e-commerce business. This is clearly the future of everything. Amazon took the first step in the direction with the announcement of a distribution center in Sand Island. Target had already been doing this with a couple facilities throughout central Oahu. I would expect to see more distribution center development from other retailers, like Home Depot and Lowe’s, with a major multi-location presence in the islands.
Where Costco goes next will be something to keep a close eye on. What will a growing e-commerce business look like exactly? Will they build more stores? At a current count of seven, there’s one each on Maui, Big Island and Kauai, and four locations on Oahu in Iwilei, Hawaii Kai, Waipio and Kapolei. Perhaps there’s room for a location in Kaneohe, Kihei or Hilo to name a few. Hawaii locals, and tourists alike, love the variety Costco has to offer, making this expansion both logical, exciting and an easy fit for the small, but massively productive market, Hawaii has become for this major retailer.