Oahu retail vacancies projected to surge this year

COVID-19 is expected to subside this year and help Hawaii’s economy rebound, but its impact on the local retail landscape is expected to worsen, according to a new market analysis.

Commercial real estate firm Colliers International projects that the amount of vacant retail space on Oahu will grow by at least 270,000 square feet this year at shopping centers because of tenant closures, after 107,586 square feet of additional vacant space was added last year.

The growth in vacant space last year was the most since 2003, and if the Colliers prediction for this year is accurate, such a change would represent the biggest erosion in retail real estate occupancy on Hawaii’s most populous island in over two decades.

“It will take several years to recover from the shock to the system, and the retail market will continue to endure through most of 2021 as vacancy rates escalate and additional businesses close,” said the report produced by Mike Hamasu, the firm’s consulting and research director in Hawaii.

To get a sense of how much empty retail space grew on Oahu last year after accounting for space that was filled by new or expanding retailers, 100,000 square feet is about the size of Salt in Kakaako or Kaneohe Bay Shopping Center. Other places about as big include Aiea Shopping Center, Pearl Kai Shopping Center and Waikiki Beachwalk.

The gain in vacant space pushed up Oahu’s retail vacancy rate to 6.4% last year from 5.4% the year before. Colliers forecasts the rate will jump to over 8% by the end of this year.

Last year’s 6.4% vacancy rate represented about 1.1 million square feet of empty space out of nearly 17 million square feet.

Colliers also anticipates that rental rates sought by retail space landlords will decrease by 10% to 20% this year.

The company’s report said the average base rental rate sought by landlords slipped 2% last year, which was the first decline in eight years following an average annual 4.5% growth rate during that time.

Last year the average monthly base rent sought for new tenants slipped to $4.17 per square foot of space from a record $4.26 the year before.

In Waikiki, where retailers have been starved of tourists due to coronavirus travel restrictions, the drop was 9%, to $14.41 from $13.09, Colliers reported.

While restaurants focused on sit-down dining were hit particularly hard, along with retailers catering to tourists, Colliers noted that retailers in certain categories benefited from higher sales, including grocery stores, home improvement stores and fast food restaurants.

“Many of these national trends were evident locally, as leasing activity remained brisk for retail fast food pad sites, big-box store sites and neighborhood grocery anchor tenant locations,” Colliers said in the report.

Additions to leased retail real estate on Oahu last year included the new 60,000- square-foot Nanakuli Village Center where tenants include Longs Drugs and several fast food restaurants, and the 40,000-square-foot Kuono Marketplace in Kahala anchored by Foodland Market.