Honolulu’s office market ended the first quarter of 2018 with 71,119 sf of negative absorption which increased the overall vacancy rate from 13.1% to 13.7%.Full Service Gross (FSG) asking rent (base rent plus full-service operating expenses) decreased from $3.39/sf/month to $3.35/sf/month. Hawaii Commercial Real Estate’s index of available spaces increased from 571 to 588 spaces across the island.


It has been 22 years since the last major office building, First Hawaiian Center, was delivered to the Honolulu market. First Hawaiian Bank originally occupied more than half of the 380,000 sf building, so the multi-tenant square footage increase was only about 150,000 sf. Office jobs are up; so why has vacancy increased if we have not been adding new inventory? We have long known that reductions in sf/employee has been a major contributor to negative absorption and vacancy increases, but the there is more to the story. By our estimates, owner-user office space has added 500,000 sf of inventory in the past 5-10 years. That’s a large downtown office tower! Owner-user inventory is not




tracked so it does not have a direct impact inventory, but these buildings have pulled tenancy directly from other private office buildings and/or have created a trickle-down effect.

To be fair, about 240,000 sf has been removed from inventory during the same time with the conversion of Waikiki Trade Center to Hyatt Centric and 33 S. King’s planned TBD conversion, so the net increase is 261,000 sf but that is still more than the net impact of First Hawaiian Center in 1996.

Looking ahead, ASB’s new campus scheduled for occupancy in early 2018 will add another 135,000 sf of owner-user inventory which could have a similar effect. ASB will vacate tracked inventory in ASB Tower and 677 Ala Moana and will vacate untracked inventory in the Financial Plaza of the Pacific and Chinatown. A potential conversion of 1833 Kalakaua would remove about 90,000 sf of tracked office inventory.



2017 4th QUARTER


Honolulu’s office market ended 2017 with 8,348 sf of negative absorption in the 4th quarter to bring the YTD total to 49,035 sf of negative absorption. The overall vacancy rate increased from 13.0% to 13.1%.

Vacancy by Submarket

Full-Service Gross (FSG) asking rent (base rent plus full-service operating expenses) increased from $3.33 to $3.39/sf/mth. Hawaii Commercial Real Estate’s index of available spaces decreased from 572 to 571 spaces across the island.

Asking Gross Rent



OccupancyHonolulu’s largest and second largest submarkets moved in opposite directions during the year with downtown’s Central Business District giving up 81,371 sf of occupancy while Kapiolani gained 54,972 sf of occupancy.

Downtown’s woes were driven by Hawaiian Dredging’s move from City Financial Tower to the former Honolulu




City Financial Tower

City Financial Tower

Airport Center

Airport Center

Honolulu Advertiser Building

Honolulu Advertiser Building


Honolulu Office Market Absorption YTDAdvertiser Building, the loss of a temporary movie production tenant, and continued “rightsizing” by tenants. Kapiolani benefited from HMSA’s expansion into the former NOAA space at 1601 Kapiolani as they renovate their building on Keeaumoku Street. Beyond Honolulu’s urban core, Kalihi/ Iwilei lost occupancy as the State of Hawaii moved out of the New Media Center. The Airport submarket lost occupancy as several government contractors downsized or moved from Airport Center which is now owned but not occupied by Hawaiian Airlines. Central/Leeward and Windward Oahu also saw small losses in occupancy. The winners included Kapolei who gained occupancy during the year despite a negative 4th quarter, East Oahu, Kakaako and King Street. Waikiki occupancy was flat.

CBD Class A Office Market Snapshot



Honolulu’s office market reversed course yet again in the third quarter of 2017 with negative absorption in nearly every submarket and in both Class A and Class B properties. This follows positive absorption in the second quarter and negative
absorption in the first quarter.
The entire market lost 55,026 square feet of occupancy which was spread across 7 of the 11 submarkets with Kapiolani and Kapolei being the exceptions. As a result, overall vacancy increased from 12.4% to 12.9%.

Full Service Gross (FSG) asking rent (base rent plus full-service operating expenses)
increased from $3.30/sf/mth to $3.33/sf/mth. Hawaii Commercial Real Estate’s index of available spaces increased from 565 to 572 spaces across the island.


In response to the rapidly changing business world, tenants are shortening their business planning horizon and are generally looking for shorter term leases. Tenants who once signed 7 and 10-year leases do not want such a long commitment and are now looking for 3 to 5-year leases. At the same time, tenant improvement costs have increased significantly which take a longer time to amortize. Combine shorter lease terms and higher TI costs and it is tough
for a tenant to move to a new space. The result is tenants increasingly look at modifying their current space or look for move alternatives that require minimal improvements.


FASB (Financial Accounting Standards Board) changed rules in 2016 relating to assets and liabilities that arise from leases. The changes require that tenant
companies provide a more accurate representation of the liability of leases
on their balance sheets, and these rules take effect in December 2018 for public companies and December 2019 for private companies. The impact is not clear yet, but it could result in tenants opting for shorter term leases to reduce their balance sheet liability associated with their lease obligations.



Honolulu’s office market reversed course again in the second quarter of 2017 with positive absorption in nearly every submarket and in both Class A and Class B properties.

The entire market grew occupancy by 84,953 square feet with nearly half of that in downtown’s CBD. Class A high-rises which have struggled in recent quarters grew occupancy by nearly 35,000 square feet. As a result, overall vacancy decreased nearly a full percentage point from 13.2% to 12.4% while the CBD vacancy decreased from 16.9% to 15.9%. The Central Business District Class A which represents 44% of the market decreased its vacancy from 16.4% to 15.6%.

Full Service Gross (FSG) asking rent (base rent plus full-service operating expenses) increased from $3.27/sf/mth to $3.30/sf/mth, the same rate at the end of 2016. Hawaii Commercial Real Estate’s index of available spaces decreased from 570 to 565 spaces across the island.

Rendering of American Savings Bank New Campus

Construction of ASB’s new campus across Aala Park, just Ewa of Chinatown, is well underway. It is scheduled to be completed 3rd quarter, 2018 and the bank plans on moving in during the 4th quarter of 2018. This project indirectly creates new inventory across the island as ASB vacates all or a portion of 5 properties. The largest is ASB’s 55,000 square foot building which is part of the Financial Plaza of the Pacific, between BOH’s headquarters and Pioneer Plaza. The bank has put the property on the market for sale. Each floor is already condo mapped making it a likely office condo project, or it could be a corporate headquarters for one of the few tenants in town that needs that much space. ASB will also be vacating several other buildings, some owned by the bank and some leased by the bank.


Pacific Guardian Center and several other buildings continue to respond to market demand by outfitting vacant spaces so they are “move-in ready”. With long permitting and construction timelines, high tenant improvement costs and shorter lease terms, more tenants are opting for spaces that are ready to go. They don’t want to wait 4-6 months for design, permitting and construction. Move-in ready space improvements range from paint and carpet of an existing office to complete gut and rebuild in the case of old and obsolete configurations.

Move-In Ready: Dillingham Transportation Bldg.

Move-In Ready: Pacific Guardian Center



The first quarter of 2017 was a tale of two office markets. Downto wn high-rises and midrises saw significant negative absorption while the rest of the market grew occupancy. Kapiolani, Kapolei, Kakaako and the non-CBD submarkets collecti vely grew occupancy by 35,323 square feet while the CBD shed 102,162 square feet. As a result, overall vacancy increased from 13.0% to 13.2% while the CBD vacancy increased from 15.5% to 16.9% (note we adjusted our 4th quarter statistics to remove the former 33 S. King Street from CBD Class B inventory). The Central Business District Class A which represents 44% of the market increased its vacancy from 14.6% to 16.4%. Asking Full Service Gross (FSG) rent (base rent plus full service operating expenses) declined from $3.30/sf/mth to $3.27/sf/mth with 1/3 of the the decrease coming from reductions in operating expenses. Hawaii Commercial Real Estate’s index of available spaces increased from 565 to 570 spaces across the island. It should be noted that our survey tracks Class A and B multitenant office buildings. If Class C and single-user buildings were added, we would have significantly lower vacancy rates.

CHANGES IN INVENTORY Slow office job growth continues to be offset by reductions in square feet per employee, and it seems the only way to reduce vacancy is to convert office space to other uses. When the Waikiki Trade Center was removed from inventory in 2015 to be converted to a hotel, Waikiki vacancy dropped from about 20% to about 10% and rent rates jumped.

One King Street (fka 33 S. King Street) was removed from CBD Class B office inventory at the end of 2016. The word on the street is that the approximately 90,000 square foot building will be converted to another use. The building was largely vacant with the remaining few tenants relocating to other CBD office buildings. On the other side of the equation, the State of Hawaii is nearing completion of the Princess Kamamalu building renovation which will add about 70,000 square feet of inventory, and ASB will add over 100,000 square feet of space to the market in 2019 when it completes its new campus and moves employees from other buildings. GROWTH INDUSTRIES Since the demise of the HECO/Next Era merger, HECO has been quietly expanding its downtown office footprint which has benefited ASB Tower and Central Pacific Plaza. And the flurry of alternative energy interest could result in office demand. Healthcare continues to be another potential bright spot as medical users look for alternatives to their oftentimes very old facilities. Medicare and Medicaid providers have a large office footprint in town. And, as discussed in our last market report, we could see co-working centers expand to fill some of the nearly 1.5 million square feet of vacancy.




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