Drought hit Hawaii commercial real estate market in 2020

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Vultures are not circling visibly overhead, but investors are expected to buy distressed Hawaiian commercial real estate this year after relatively little market activity last year.

According to a new report from Colliers International, purchases of shopping malls, hotels, office buildings and other commercial real estate across the country fell 54% to an 11-year low of $ 1.2 billion last year. This is a decrease from $ 2.6 billion in 2019, followed by a record high in 2018 at $ 5.2 billion.

The commercial real estate company said the decline was mainly due to investors staying on the mainland and internationally during the coronavirus pandemic.

However, this year, Colliers expects commercial property sales to recover above $ 2 billion as some investors target properties that are under financial strain due to declines in sales related to COVID-19.

“During these challenging times, many investors have thrown away capital in anticipation of future opportunities for investments in vulnerable properties,” Colliers said in the report.

The company generally views regional malls, power retail centers, and urban office buildings as the highest risk bets. Behind this are luxury and limited-service hotels, suburban office buildings, retail centers with food anchors, vacant residential lots, and apartment buildings that have solid fundamentals over the long term but potentially short-term stress.

Colliers also said in its report that it can envision developers pursuing difficult retail and office properties for conversion to residential or industrial use.

Overall sales last year were bleak, but not as bad as during the Great Recession, when commercial property sales in Hawaii were $ 788 million in 2008 and $ 627 million in 2009.

The biggest sale last year was a 14-acre industrial site near Sand Island that Amazon acquired for $ 125 million. The seller was Servco Pacific, who used the property for vehicle processing and an auto parts depot. Amazon is expected to use the website to expand its activities locally.

According to Colliers, the purchase on Amazon was the only deal for over $ 100 million. The next largest sale was King Kalakaua Plaza, a long empty retail building in Waikiki that sold for $ 76 million. The buyer, a subsidiary of Athos Capital Partners, has partnered with Marriott Vacations Worldwide to convert the four-story building once anchored by Niketown into a seven-story timeshare. Construction is expected to start this year.

Typically, hotels represent the largest segment of commercial property sales in Hawaii. However, last year hotel or resort property sales represented 1% of total revenue, or $ 14 million, compared to $ 453 million to $ 2.4 billion . USD in recent years.

Due to COVID-19 and safety-related travel restrictions, tourism in Hawaii has declined in 2020 and is not expected to return to pre-coronavirus levels until after 2023. Colliers said this increases the risk that hotel owners will not get credit.

“The risk of credit defaults will continue to increase, while hotel occupancy and room rates will be negatively impacted by the decline in travel,” the report said.

By property type, most sales last year were in industrial properties, which accounted for $ 369 million in revenue. Retail followed at $ 270 million, followed by homes at $ 256 million. It also sold $ 167 million in office properties and $ 117 million in land.

Colliers counts commercial real estate sales over $ 1 million.

The report said that with so many investors absent from the mainland and overseas, local investors made most of the purchase, which is unusual. In 2018, mainland buyers accounted for 73% of commercial real estate sales in Hawaii, while local investors accounted for 23% and overseas buyers accounted for 4%.