New Supply Coming to Oahu
Colliers touched on an important topic in its latest quarterly report for Q2 2024: a new slate of industrial projects being built on Oahu in the next 18 months. If you go back 5 years, the period of time covering COVID, inflation and high interest rates, you’ll have seen quarterly industrial reports with corresponding headlines: low availability to meet the surge in e-commerce activity, rising construction costs, and ultimately limited new development for the forseeable future. Separate from the macro headlines, there’s another major issue exacerbating these challenges, limited available land for development in Hawaii. On Oahu, a series of large corporate purchases by Costco, Home Depot and Amazon virtually eliminated all available land for new industrial development. However, a few groups utilized competitive advantages to circumvent these issues and proceed with new projects.
James Campbell Company jumped into the mix a couple years ago, leveraging its legacy land holdings, presumably at a low-cost basis, to embark on a series of Class A distribution style projects under the Kapolei Harborside banner. With their first 102,545 SF Phase I project completed in July 2024, and rents proving out the concept, more is on the way. Their Phase II 90,400 SF project is coming in Q2 2025. Of the roughly 600k SF of new projects covered by Colliers, James Campbell is delivering approximately 192k SF or 31% of this total.
Another group with a competitive advantage is Avalon Development. Their land cost basis in Kapolei Business Park West is favorable given their role as a land development partner in the subdivision’s original construction. Their latest project, covering 162,693 SF, including warehouse condo and for-lease product, caters more to small users with unit sizes as small as 1,280 SF up to 15,645 SF.
To round out the mix, there’s an assortment of users, builders and investors out there bringing additional non-institutional product to the market. Nan, a large contractor, produced a series of small bay warehouses in Kapolei a few years back, utilizing their construction expertise en route to a successful outcome. In the current slate of projects, the Honolulu Cookie Company Building at 108,615 SF and the Kaimana Kapolei at 90,637 SF by developer APB LLC are lesser known projects by Apeak, but likely owner-users finding a competitive advantage through financing, construction, land basis or 3rd party leasing of a portion, to make the projects feasible.
What does roughly 600,000 SF of new construction mean for Oahu’s industrial market? All six projects will be in Kapolei so it’s easy to isolate the impact on this market alone. Kapolei’s existing inventory of 7.5mm SF of industrial product will increase by 8%. Oahu’s entire industrial supply of 41.6mm SF will only increase by 1.4%. For Kapolei, 8% is material, but the impact is lesser-known given the infancy of the market and wide-ranging user types in the market. James Campbell appears to be exclusively targeting Class A, credit, large scale users. Kapolei has already proven to be a market for this type of tenant. Avalon’s focus, especially on the for-sale side, is to smaller users with an aim to purchase. The other projects will likely be a mix of the two.
The hope for Kapolei is these new buildings create a more robust industrial eco-system. In turn, this would allow the market to mature and grow, thereby bringing new prospects to West Oahu who either reside in town or have not yet established a presence in Hawaii due to a lack of functional, modern projects like those currently in the development pipeline.