Up, Up And Away
From residential sales and median home prices to office vacancy rates – everything real estate will take flight in 2003
Fueled by long-term interest rates at 30-year lows, Hawaii’s residential real estate market has seen a vibrant 2002. Last September, the median sales price for single-family homes jumped 44 percent over February 2001, reaching a whopping $360,000 – just $32,000 shy of the highest median sales price on record in Hawaii ($392,000 in August of 1990). Sales of both single-family homes and condominiums also increased significantly last year – up 12 percent and 18 percent, respectively, from third-quarter 2001 to the same period last year, according to Coldwell Banker.
Though not as robust, the Islands’ commercial real estate sector fared relatively well last year also, given the odds. “Oahu’s vacancy rates (in the Central Business District) remained fairly resilient … rising from 10.61 percent to 12.68 percent over the past two years,” says Mike Hamasu, director of consulting and research for Colliers Monroe Friedlander.
But with the national economy still in a rut and a global war on terrorism in full effect, how long can the residential real estate market continue to prosper, and how long must we wait before commercial vacancy rates rebound?
Single-family home and condo sales have been picking up speed since 2000, with 2002 year-end sales culminating in near record levels. But how long can the upswing last?
“Sales rise only as much as either there’s jobs being added to the economy, or there’s people moving to the Islands, so at some point in time, sales will have to decelerate nearer to the natural growth of our society,” says Ricky Cassiday, research director for Prudential Locations.
Herb Conley, managing director of Coldwell Banker, says there are several trends contributing to the success of residential real estate in Hawaii that will continue in 2003:
- Low interest rates continue to fuel demand for home purchases.
- More people are looking at real estate (specifically their homes) as an excellent investment in light of the current shape of the equity markets.
- Honolulu has moved from being in the top 10 nationally, in terms of highest prices, to No. 51. This means that we are considered a great value for Mainland investors.
- With a lack of new high-rise-condominium construction in Metro Oahu during the past decade, and strong current demand, look for new projects to begin appearing in 2003.
The experts agree: Job growth will be the primary determinant in whether office vacancy rates stabilize or increase further. “Job growth primarily impacts the demand for office and industrial space, which is why Hawaii is experiencing flat demand in these segments of the market, but eventually impacts other commercial real estate sectors as well,” says Stan Kuriyama, chief executive officer of A&B Properties Inc., who predicts that office vacancy rates will remain flat throughout 2003.
Frances Okazaki, director and principal broker of CB Richard Ellis, predicts intense competition among owners for new tenants will stimulate a renewed appreciation for their current lessees. “In 2003, owner-tenant services will be an integral part of tenant retention, and therefore, there will be a conscious effort to improve and provide the highest quality of owner/tenant and property management services to existing users,” she says.
The retail sector of the commercial market will likely be hit the hardest this year, according to Colliers’ Hamasu. “The closing of JC Penney, Kmart, McInerny and a few smaller retailers will likely push the current 5.3 percent Oahu vacancy rate to 8.5 percent by the end of the first quarter,” he says.
Finally, industry experts predict a relatively flat industrial market, with vacancy rates hovering around 4 percent. They are nebulous about the investment market, which will be determined by the interest rates, the ability to get attractive financing and the shortage of available properties for sale.