Commercial real estate brokers are seeing signs indicating rent prices can’t go any lower.
In fact, says Glennon Gingo, owner of Hawaii & Pacific Commercial Properties, the market probably hit bottom, price-wise, some time last year.
“Look at where we are versus two or three years ago,” Gingo said. “We’re not going backwards anymore. … The rents have pretty much bottomed out and stabilized.”
That is, in part, because landlords and property owners already lowered lease prices about as low as they could go, Gingo added. Commercial properties are leasing for 16 percent to 20 percent less than they were four or five years ago. An industrial space in 2005 or 2006 would lease for about $1.40 per square foot. Today, the rate is running at less than $1 per square foot, Gingo said..
The change in prices, and the way businesses cut back on costs, including rent, during the past few years, has created some problems for landlords, he added.
“It’s a challenge for the landowner to get people to stay,” Gingo said. “You have to keep them happy.”
Businesses have moved around — he pointed to Ross, moving from the Kona Coast Shopping Center to Kona Commons — to places owners feel are more visible or more in line with their business plans. In some cases, that has meant moving to smaller, but more strategically located, sites, he said.
Pier 1 Imports eventually filled the vacancy Ross left, which had the added bonus of bringing a new retailer to town, Gingo said.
Clark Commercial Group President Greg Ogin agreed prices are unlikely to go much lower. Two factors are at play in Kona’s commercial market, Ogin said, tourism and construction. Construction is slow, but tourism seems to be rebounding, he said.
“Restaurants and value retailers, like ABC Stores and Walmart, are doing well,” Ogin said. “(In) regular price retail, people aren’t spending.”
The cost of oil, which impacts tourists directly in the form of airplane ticket prices, and by taking away from discretionary spending money, plays a less direct role in the commercial market, he said.
He described the available commercial inventory as an oversupply.
Gingo agreed. He noted the large infusion of vacant commercial space when the West Hawaii Civic Center opened in 2011, taking a number of county office tenants out of several office complexes.
“It will have an effect,” Gingo said. “It’s hard to say how long it will take to absorb that vacancy.”
At the current absorption rate, it could take up to five years to fill the space, he added. But if the economy improves, then more businesses will be looking for office space, and that absorption rate could change and the empty offices could fill more quickly.
Gingo pointed to one sign that Kona’s real estate market could start seeing more of a recovery soon. In some areas of California, technology companies are again hiring high-salaried workers — and those workers are getting in to bidding wars for homes. Those workers, if they stay employed, are the kind of people who buy second or third homes in Hawaii, and who tend to start businesses here or invest in business in Hawaii, Gingo said.
He said he sees the upcoming presidential election as one last factor keeping some business owners from expanding or hiring now.
“That’s the emotional side of the economy,” Gingo said. “At least people are thinking moving forward. We probably do have something good around the corner.”