Hawaii is famed for its world-famous, pure white-sand beaches and near-perfect year-round weather, making it one of the world’s most popular tourist destinations, attracting millions of visitors each year.
The Aloha State is also gaining popularity among commercial real estate investors, who visit its shores not for a holiday but to buy assets.
Hawaii saw big-wave investments in commercial real estate in 2018, with a record overall sales volume of $5.2 billion. Because of the COVID-19 pandemic, which disrupted global real estate investments, that number plummeted in 2020 and the first half of 2021.
However, as more investors resurface and seek to take advantage of the benefits of investing in Hawaii’s wealthy commercial real estate market, interest in Hawaii real estate investment is picking up again. The second half of this year will see a solid recovery, with investment sales volume expected to top $2 billion in 2021.
The shortage of supply of properties and suitable land will highlight the increasing demand for Hawaii investment properties. This allows for a growing market for limited properties, with little or no long-term repercussions from the pandemic.
The Advantages of Investing in Commercial Real Estate in Hawaii:
While total commercial real estate sales volume in Hawaii fell to $1.2 billion in 2020, the lowest level since the Great Recession, one large purchase stood out: Amazon’s $125 million purchase of the 14.5-acre old Servco Pacific car lot near the Daniel K. Inouye Honolulu International Airport.
The sale turned out to be profitable for Servco Pacific, as the auto dealer recognized for its Toyota brand earned more than $106 million in appreciation. According to public records, Servco Pacific paid only $18.9 million for the industrial-zoned land in 1987.
This kind of phenomenal growth in Hawaii commercial real estate is not uncommon, and it’s one of the key reasons why investors flock to the islands. According to City and County of Honolulu tax records, the land already has an assessed value of $76.6 million, which could turn out to be a terrific investment for Amazon, which plans to build many warehouses on the new property.
The fact that there were essentially no other feasible alternatives near the Honolulu airport, which is a vital site for Amazon’s distribution and logistics platform, was one of the main reasons for the retailer’s high price tag for the Servco property.
The Seattle-based e-commerce behemoth had been looking for a place in Hawaii to help with its distribution operations for quite some time. When the Servco Pacific lot went on the market in early 2020, Amazon was one among the first buyers to look into it, and the deal was completed just a few months later.
Due to the shortage of property in Hawaii, numerous off-market transactions occur, and the state has seen a surge in off-market commercial transactions in recent years.
3) International Investors
International interest in Hawaii, primarily from Asian countries like as Japan, China, and South Korea, was not quite as strong in 2020 as it was five years previously, when the overall sales volume from foreign investors reached a decade high of about $1.5 billion. The total amount of money sold by Asian investors in 2020 was only $11.7 million.
As indicated by the avalanche of investments made in such assets over the years, most notably China Oceanwide Holdings’ several acquisitions at the luxurious Ko Olina Resort in West Oahu, Asian investors have traditionally preferred hotel or golf properties in Hawaii. These deals were worth hundreds of millions of dollars and involved the purchase of undeveloped land on which various hotels, including an Atlantis-branded resort, were subsequently built.
Because China Oceanwide is likely to sell some of these assets in the coming years, this type of large-scale investment will open up chances for other investors.
Hawaii has one of the most stable commercial real estate markets in the country. The main reason for this is because there is still an undersupply of properties in the state. The difficulty of constructing assets in the state, combined with high demand for existing properties, keeps the state stable.
Many long-term commercial property owners in Hawaii are looking for the same kind of profit as Servco Pacific did when it sold its property to Amazon.
Hawaii’s higher average rental rates make many properties appealing acquisitions for investors, partly because these higher rentals generally cover the property’s carrying expenses, allowing an investor to hang on to it eternally while it appreciates.
5) Tax Breaks
In Hawaii, there are at least 70 real estate investment trusts (REITs), including one that owns Ala Moana Center in Honolulu, the state’s largest shopping mall.
Currently, REITs operating in Hawaii do not have to pay corporate income taxes. Hawaii-based REITs are anticipated to save between $10 and $65 million in taxes each year as a result of this.
State legislators have been attempting for nearly a decade to pass legislation imposing corporate income taxes on REITs. While some smaller investors argue that adopting this tax would level the playing field, others argue that REITs create opportunities by actively buying and selling properties in the state.
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