Prime Retail Markets Remain Competitive, Secondary Markets Remain Flat

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In 2012, Hawaii’s major economic indicators continued on a positive trajectory. The tourism sector, on which Hawaii’s economy is centered, showed growth in both visitor arrivals and visitor expenditures in every month of the year. According to the Hawaii Tourism Authority, total visitor expenditures for 2012 were a record high of $14.3 billion, an 18.7 percent increase over 2011, while the total visitor arrivals of 7.99 million exceeded the previous record of 7.63 million in 2006. Wage and salary jobs, personal income, and state general fund tax revenues all also increased in comparison to 2011.

According to the latest reports from the Bureau of Labor Statistics (BLS), job growth accelerated during 2012 in Honolulu, with similar improvements taking place statewide. The construction sector, along with hospitality and leisure employment, both increased at a higher rate than any other sectors with increases of 5 percent and 3.7 percent, respectively. Improvement to the hospitality and leisure sector is notable due to the fact that leisure and hospitality jobs represent the third largest employment block in the state and its largest metro area. With respect to construction, this sector plays an important role in driving consumer confidence. This, in turn, gave retailers the assurance to open more locations.
Considering the positive growth in both employment and tourism, overall vacancy decreased in 2012 from 5.7 percent to 4.8 percent. Hawaii’s retail market experienced significant improvement, with an overall positive net absorption of 223,335 square feet in 2012. This is the first time the market has seen a positive net absorption since 2009. This combination has allowed the industry to flourish, creating interest from national and global retailers looking to penetrate the market.
The Hawaii Tourism Authority recently stated that it anticipated a record-breaking 8.5 million total visitors who will spend about $15.8 billion. This is a 6.3 percent increase in visitors and a 10.7 percent rise in overall spending. The impact of these improvements is being seen in the retail market. During 2012, we saw increasing demand for properties located in resort areas and new retailers looking for sites in Hawaii. The best performing locations are prospering, while secondary market areas are stable. Honolulu’s urban retail sector has continued to grow, creating a high demand for retail space with very low inventory. Notable retailers expanding or in the market for new space include: Target, Walgreens, Petco, Sports Authority, H&M, Urban Outfitters, Anthropologie and more. In addition, General Growth Properties has said it will close the 340,000-square-foot Sears location at Ala Moana Center store in early 2014. It plans to redevelop the space into new in-line shops as part of a mall expansion that will extend out to Piikoi Street.
In Waikiki — Honolulu’s premier “urban retail” market and one of the foremost travel/resort and shopping destinations in the world — the major shopping areas are offering more entertainment, restaurant and shopping choices than ever before. Royal Hawaiian Center continues to experience success with new tenants, including Tory Burch and Lora Piana, complimenting their existing merchandising mix. Waikiki Shopping Plaza also recently completed construction on an addition that is connected to the existing structure, which included a 16,000-square-foot flagship, two-story Victoria’s Secret; a two-story, 12,000-square-foot Armani Exchange; and a Sephora and Tanaka of Tokyo. The four prime blocks along Kalakaua are currently experiencing a flight to quality as all of the incoming national and global tenants compete for the same space. The combination of strong interest and almost no inventory have resulted in rents increasing by as much as 94 percent over the past two years.
Although encouraging developments began to emerge in 2012, the outlook for retail in Hawaii remains fragile. Hawaii is following the national trend where the top-performing retail areas and malls are extremely strong and experiencing significant demand, while the secondary and tertiary markets are struggling and expected to stay flat indefinitely. Further, Honolulu’s economy is highly exposed to events far beyond its borders. Uncertainty still remains within the U.S. and global economies, concerning the effects of sequestration and tax policies that could impact Hawaii’s retail markets in the foreseeable future.
— Kim Lord, senior managing director of CBRE's Honolulu office, and Andy Starn, vice president of CBRE's Honolulu office

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