Oahu Industrial - Tighter We Go
Colliers came out with their Q4 2022 report this past week and results didn’t skip a beat. The trend of higher rents and lower vacancy continued to reach new highs and lows for Oahu’s industrial market. Vacancy sunk below the psychological-important 1% mark to a skinny 0.81%, the lowest in recorded history according to Colliers. Asking rents for available industrial properties, all 57 listings of them, jumped from $1.27 psf / mo at the end of Q3 0222 to $1.48 psf / mo this past quarter.
Covered in the article are a few key items pushing the market in this direction. One big one is land availability. Oahu has an extreme scarcity of developable land, both now and for the foreseeable future, causing vacancy to dip to record levels as new supply simply can not meet current and future demand. Amazon and Costco have only exacerbated the problem by buying large chunks of entitled industrial land that might have otherwise been sold as smaller lots to owner-users and spec developers. The typical new-supply release valve for low vacancy doesn’t exist on Oahu, especially as what little available land they have is hitting nose-bleed pricing of $60 psf in places like West Oahu.
As a developer myself, I can tell you this type of land price in combination with construction costs now well above $225 psf and 6% interest rates, makes projects tough to pencil even with rents approaching $1.50 psf / mo.
With existing and future supply non-existent, demand can’t be met. And with the industrial-centric world we’ve moved into post-COVID, covering our needs for improved on-demand inventory, e-commerce capabilities and cold storage, the imbalance is beyond noteworthy. Inflation, increasing interest rates, and a pending recession might cool off the demand side a bit. But even that might not be enough to dent a statewide industrial market historically hovering in the 1 - 2% vacancy rate. I’m sure I’m not the only one curious to see where we start the New Year with Collier’s release of Q1 data sometime in April ‘23.