Why So Many Vacant Commercial Rentals in Kona, Hawaii?

I went to lunch the other day to a small hamburger restaurant a bit off of Alii Drive. The restaurant, Island Ono Grill, is one of my favorites, but I could not help but feel a bit of amazement that there area near the restaurant was a bit like a ghost town. The restaurant’s neighboring spaces were both empty, as was the retail space across from it. The whole complex seemed to be about 40% vacant. The amazing thing is that much of that space has been vacant for years.

The lost opportunity for established businesses is evident; there are few businesses to bring shoppers around.

vacant commercial

Why are there so many long-term vacancies in good and not-so-good commercial spaces? It would seem to make sense that building owners would get their rent to a level that the market would bear. In other words, price the office space to be rented. Makes sense, or does it?

There are a few assumptions of a price-it-at-market demand model:

  1. There is sufficient demand for office/commercial/industrial space to fill demand if the price is right. In other words, at a price, there would be a renter. Perhaps Kona has over-built commercial real estate.
  2. Lowing rental costs to attract new renters would not require lowering rent for existing clients. This can be a challenge. Tenants talk, and nobody wants to be paying more than their neighbor.
  3. Building owners do not somehow benefit from vacancies.  Is there a tax incentive for NOT renting property? I’ve never heard of it, but that might be a reason for the abundance of vacancies.

That said, it does seem a lot of commercial space in Kailua-Kona is woefully underutilized.

I am certain that building owners in Kona could approach vacant space much more creatively. For example, a lot of vacant space on the Mainland is (at least temporarily) occupied by so-called “pop-up” stores. Building owners could also provide low-cost temporary office space with basic amenities like cubicles, desks, and basic Wi-Fi. Small, emergent businesses could rent a space for a reasonable amount. Another possibility would be creating incubator or maker spaces.

I suspect that a lot of property owners, perhaps acting on bad advice from consultants and property managers, might be waiting for a time when Kona enters a boom phase, and they will magically find high-paying renters for all their vacant space. I’ve seen several boom and bust cycles and Kona, and I highly doubt what they are waiting for will arrive. If I owned commercial property in Kona with a vacancy, I would certainly be more creative than what I see now in the marketplace.