Weak business confidence and rising unemployment are expected to contribute to a decline in O'ahu's office space market this year equivalent to an empty 13- or 14-story building, according to one of Honolulu's largest commercial real estate firms.

That's about how much empty office space was produced last year, which became the second straight year of rising office vacancies on the island, according to a report by Colliers Monroe Friedlander.

The firm said shrinking or closing companies helped produce 139,509 square feet of increased space last year to put the vacancy rate at 8.6 percent.

The 8.6 percent rate, which was up from 7.3 percent a year earlier, represented 1.35 million square feet of vacant space in the market with 15.7 million square feet of space.

Despite the significant rise last year and the expected continuation this year, O'ahu's office market should remain in good shape at or below the 10 percent vacancy mark that industry experts consider a balanced market, or an equilibrium where neither landlords nor tenants have significant leverage over each other.

Mike Hamasu, Colliers research and consulting director, said in the report that if the recessionary atmosphere doesn't begin to subside this year, office vacancies could rise above 10 percent. But the firm projects the year will end with the vacancy rate at 9.5 percent.

Jay Shidler, chairman of Pacific Office Properties Trust Inc., which owns seven Honolulu office buildings, said vacancy at 9 percent or 10 percent isn't terrible. "It's not the end of the world," he said. "I think we're in a period of steady uncertainty, where nothing dynamic is happening. We're OK."

Shidler noted that a recent Merrill Lynch Research study ranked Honolulu as the second-healthiest office market in the country.

The Honolulu office of CB Richard Ellis Inc., another large commercial real estate firm, said in a recent report that the local office market has remained relatively stable because no new office towers have been built since 1996.

"After a year of unprecedented turmoil in the Mainland real estate and financial markets, the Honolulu commercial real estate market is relatively unscathed," said the report by Jeffrey Hall, senior director of research for CBRE in Hawai'i.

O'ahu's office market tends to avoid volatile swings because of the state's relatively small sector of businesses that lease or vacate large amounts of office space, and the high cost of building new office towers that can saturate supply.

An office tower building boom in the early 1990s left the market saturated with available space, which in combination with a stagnant economy for most of the 1990s pushed O'ahu's office vacancy rate to a peak of nearly 14 percent in 1998, according to Colliers data.

Vacancies were gradually absorbed over most of this decade, falling to a low of 7 percent in 2006.

Still, a roughly similar amount of vacant space produced last year was added to the market in 2001 and 2002 in part due to the fallout in tourism after the Sept. 11 terrorist attacks.

The recent economic downturn has led to six consecutive quarters of more space emptied than filled.

Colliers in part bases its expectation for office vacancy this year on economist projections for job losses in the range of 0.2 percent to 1.4 percent, which Colliers estimates would result in 184 to 1,287 office positions lost.

Despite the recent weakness in occupancy, rents asked by landlords have risen modestly over the past several years, and last year full-service gross rent averaged $2.84 per square foot a month, up from $2.76 last year, Colliers reported.

Colliers said the rental rate rise reflects the portion of rent paid for common area charges that have risen because electricity rates and other operating expenses are higher.

Rents sought by landlords this year are expected to decline, while landlord concessions such as tenant improvement allowances and free rent periods are expected to increase, Colliers said.