The recent subprime mortgage industry meltdown helped drive O'ahu office vacancies higher in the third quarter, though the impact was largely offset by growth in other business sectors, according to new reports.

Local commercial real estate firm Colliers Monroe Friedlander said vacated space grew by a net 70,000 square feet from July to September, in large part because of subprime mortgage lenders closing their doors.

The rise in empty office space pushed the vacancy rate to 6.9 percent, up from 6.5 percent at mid-year.

The empty space — nearly 1.1 million square feet — represents a rough equivalent of three Downtown high-rises.

However, during the first nine months of the year, vacant office space was reduced by a net 47,525 square feet through general business growth, Colliers said in its report.

"The office sector continues to post strong job growth, having registered a 3.9 percent increase in jobs over the past year," Colliers said in its report.

Still, concerns exist over how much positive or negative momentum the office market may have, according to a report by Hawaii Commercial Real Estate LLC.

Jamie Brown, Hawaii Commercial president, said he's concerned that demand for office space could weaken because of the state's slowing economic growth, particularly in the tourism and housing sectors.

Also hampering office leasing is low unemployment, which tends to restrict business growth, and efforts by companies trying to offset rising rents by squeezing more employees into less space.

The mortgage industry shakeout also could still be a factor, though much of the space vacated to date has been balanced by growth inside and outside the mortgage industry.

Hawaii Commercial said that mortgage lender Indymac Bank filled a lot of space vacated by a couple of other lenders. Also filling large vacancies were Servco Insurance Services, which leased roughly 11,000 square feet, and the city and a private contractor, which leased nearly 30,000 square feet related to O'ahu's rapid transit project.

However, Brown noted that more vacant space from the mortgage business could hit the market, including about 10,000 square feet from Countrywide Home Loans.

"It's vacancy that hasn't hit the market yet," he said.

According to the reports by Hawaii Commercial and Colliers, vacancies are growing among the highest-quality, highest-priced buildings referred to as Class A properties, while vacancies are shrinking in Class B and C properties.

Colliers said tenants filled 96,168 square feet of vacant Class B and C office space this year through September, while tenants vacated 48,643 square feet of Class A space.

The shift generally is from tenants seeking cheaper space in response to rising rents.

"Tenants are having sticker shock when looking at renewing or signing new leases," Hawaii Commercial said in its report.

The average asking price for office space was $2.69 per square foot monthly in the third quarter, up from $2.66 in the second quarter, according to Colliers. Since the end of 2005, average asking rent is up about 13 percent.

Brown said he expects landlords to continue to seek higher rents, largely because expenses such as property taxes and electricity are on the rise.

O'ahu's office inventory is not expected to grow anytime soon, as there are no large office building development projects anticipated for Honolulu's urban core. However, three office projects are planned for Kapolei that, if developed as expected, would begin to add as much as 900,000 square feet of space starting in 2009.

For this story, vacancy and rent statistics were based on the Colliers report, which surveys 163 buildings with 15.7 million square feet. Hawaii Commercial's report, which excludes Class C property, tracks 72 office buildings with 11 million square feet.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.