A local development partnership plans to begin constructing industrial condominiums in Waipi'o later this month to give mostly small businesses opportunities to own warehouse space.

THM Partners is developing the estimated $60 million project with about 250,000 square feet of warehouse space on 10 acres at Waipi'o Business Park.

The project, a few blocks makai of the Tony Group Autoplex and Costco, aims to satisfy strong demand for warehouse space in a market with tight supply.

Local commercial real estate firm Colliers Monroe Friedlander reported an industrial space vacancy rate of 2.28 percent on O'ahu in December, up slightly from a 10-year low of 1.71 percent in 2004 but still well below the 6 percent to 8 percent range for balanced supply and demand.

Unlike some larger speculative warehouse projects, THM designed most of its 99 units on the smaller side, from about 1,500 to 7,000 square feet.

"We're hoping to serve the needs of smaller users — the small contractor, the small distributor, the small business owner — guys that want to own their own space and control their own destiny instead of worrying about rents increasing," said Serge Krivatsy, a THM partner.

Prices range from about $479,000 for a 1,443-square-foot space to $2.2 million for a 7,253-square-foot space with parking.

A few units have street frontage and showroom space that could accommodate ancillary retail use, in spaces from 1,880 square feet to 20,000 square feet, for $650,000 to $7.2 million.

Selling small industrial units as condos has been a popular strategy in recent years by speculative warehouse developers who have recently added lots of new inventory on O'ahu.

Many companies also have responded to the market and low interest rates by developing warehouse space for self-use.

One recent addition to the market is Kapolei Industrial Court, a project with eight fee-simple industrial condominiums of 5,625 square feet that were available for $1 million each. One buyer in December bought all the units and is renting them out, according to project developer Scott Mitchell.

Another project, the 105,855-square-foot Kapolei Spectrum Business Park, was completed in March and has sold about 60 percent of its condos, with a few additional pending purchases. Because the developer intends to keep 30 percent of the units for leasing, no more units are available for sale.

Kapolei Spectrum developer Low Archibald Real Estate Group of California recently started construction on a second phase, with 210,000 square feet of space. Completion is expected this fall. Sales have yet to begin.

Colliers said 600,000 square feet of new warehouse construction was added to the market last year, though some previously expected projects have not been built.

Honolulu-based Avalon Development Co. had planned to build a 200,000-square-foot warehouse complex in Waipahu, but company president Christine Camp Friedman said rising construction costs made the project too risky. Instead, Avalon is subdividing and selling the 13-acre property as smaller lots.

"There's huge demand," Friedman said. "I could have preleased it or sold it as condos (if construction costs had been lower)."

THM was formed last year by Krivatsy, Samuel Chung and David Bierwert — all three of whom left local development firm MW Group to form THM.

The partnership bought 10 acres of land from Gentry Cos. last year for about $24 million, according to property records.

THM's Waipi'o project is slated to break ground April 23. Completion is projected in spring 2008.

Broker Mark Ambard of Ambard & Co. is handling project sales.

Nordic Construction is the general contractor.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.