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Commercial Department: Spotlight: Hawaii: March 2017

 

Spotlight: Hawaii

Retail and resorts bolster the Aloha State’s economy.

Idyllic beaches, sparkling lagoons and all-inclusive resorts entice visitors to continue visiting the nation’s 50th state in droves each year, bolstering the Aloha State’s tourism-driven economy.

Hawaii isn’t just popular with tourists, however. It’s a popular place to live — for those who can afford to do so. Hawaii boasts a population of 1.4 million people, making it the 40th most populous state, although it has the 13th highest population density. Its serene isolation comes at a steep price, given it boasts the highest cost of living in the U.S. — with the highest median home price nationally, at $646,500, according to Forbes magazine.

Retail and resort construction are major forces behind Hawaii’s economy, and new retail and resort projects have driven steady, if slow, growth in the hospitality sector, helping to lift Hawaii’s economy out of the recession.

The Aloha State is a popular tourist destination, attracting visitors from the U.S. mainland as well as from nearby Asian countries, such as Japan and, increasingly, China.

More than 8 million visitors set foot on Hawaii’s shores in 2016 and spent more than $14 billion, according to the Hawaii Tourism Authority. The State of Hawaii’s Department of Business, Economic Development & Tourism (DBEDT) expects both visitor arrivals and expenditures to grow modestly in 2017.

Behind tourism, defense spending is a major economic influence on the Hawaiian islands. Each of the U.S. military’s five armed services has a presence in Hawaii, including the island of Oahu’s Schofield Barracks Army installation — a census-designated location with a population of more than 16,000. A 2009 report from the RAND National Defense Research Institute estimated that defense spending in Hawaii could account for up to 18.4 percent of the state’s more than $80 billion gross domestic product (GDP).

DBEDT forecasts Hawaii’s GDP growth to be slightly higher in 2017 than in 2016. GDP is forecast to grow 1.9 percent in 2017, 1.7 percent in 2018 and 1.6 percent in 2019. Those projections for growth, however, didn’t stop Forbes from naming Hawaii as one of the worst states for businesses, citing onerous business taxes and the high cost of living.

Although Hawaii’s economy saw growth in most areas, state general-fund tax revenues were down year over year by $53.1 million in third-quarter 2016, according to DBEDT. State general excise-tax revenue was down by $30 million.

skip to 3 Cities to Watch>>  

Oahu retail market

c_2017-03_Spotlight_chart1Retail-related development, in addition to resort development, is the biggest driver of nonresidential building in Hawaii, according to the University of Hawaii Economic Research Organization (UHERO).

After posting negative net space absorption of 26,673 square feet in 2010, the island of Oahu’s net absorption rates for retail property have trended positive for five consecutive years, reaching 400,000 square feet in 2015 and nearly 280,000 square feet through the first three quarters of 2016, according to Colliers International Research and Consulting. Construction of new retail centers, including the grand opening of the Saks Fifth Avenue-anchored International Marketplace in the city of Waikiki, is largely responsible for the growth in net space absorption.

Retail vacancy rates in Oahu, however, rose from 4 percent in 2014 to 5.49 percent as of the past third quarter. Colliers expected that the grand opening this past October of the Ka Makana Alii mall in the city of Kapolei would push vacancy rates on the island above 8 percent by year-end 2016. The average asking rent for Oahu retail space was $3.94 per square foot as of this past third quarter, which is up from $3.24 in 2012 — a 21.6 percent rise in rent over 15 quarters.

Focus: Hospitality

Hospitality, an industry intimately tied to Hawaii’s booming tourism industry, continues to recover post-recession. The recent openings of several new resorts bolstered job growth in the state’s accommodations and food-services sectors, according to UHERO. Hawaii is experiencing modest growth in both airline service and hotel-room capacity, which is expected to result in 2 percent visitor growth this year.

Arrivals will taper off beginning in 2018, however. Unless additions to the state’s hotel-room stock are larger than expected, growth in visitor days is expected to slow to less than 1 percent by 2020. Additionally, a strong U.S. dollar is expected to hamper international visitor spending, particularly for Japanese and Canadian visitors. Visitor spending grew 1.5 percent in 2016, but is expected to decline modestly this year, UHERO reports.

Unemployment

c_2017-03_Spotlight_chart2Hawaii’s seasonally adjusted unemployment rate hit 3 percent in November 2016, compared to a national unemployment rate of 4.6 percent. The November mark represents Hawaii’s lowest unemployment rate since October 2007, according to the state’s Department of Labor and Industrial Relations. Hawaii’s unemployment rate peaked at 7.3 percent in 2009, at the height of the Great Recession.

Although the state’s unemployment rate is as low as it has been in nearly a decade, growth in Hawaii’s labor market has been anemic. Overall job growth is expected to fall below 1 percent by 2018 as demand for construction decreases, UHERO predicts.

The state’s unemployment rate was projected to be 3.3 percent at the end of 2016, according to DBEDT. The unemployment rate in 2017 is forecast to increase slightly, to 3.4 percent.

Sources: Colliers International, Forbes, Hawaii News Now, Hawaii Tourism Authority, Honolulu Civil Beat, KHON2, RAND National Defense Research Institute, State of Hawaii Department of Business, Economic Development & Tourism, State of Hawaii Department of Labor and Industrial Relations, Time.com, University of Hawaii Economic Research Organization, U.S. Department of Labor, West Hawaii Today



3 Cities to Watch

Kapolei

Known as Oahu’s “second city,” Kapolei is located on the island’s south shore, about 25 miles west of Oahu’s “first city,” Honolulu. This past October, the Ka Makana Alii, a 1.4 million-square-foot shopping center, debuted as the first regional mall in west Oahu. Kapolei will serve as the terminus of a 20-mile light-rail system slated for completion in 2021 that is expected to cost more than $6 billion to develop. It will connect the western Oahu city to downtown Honolulu and Honolulu International Airport.

Kahului

c_2017-03_Spotlight_KahulluiKahului is the island of Maui’s largest retail center, featuring major malls and stores, in addition to museums, a wildlife sanctuary and the Maui Arts and Cultural Center. In addition, $3 billion in improvements to Kahului Airport — Maui’s largest airport — are expected to be completed by the spring of 2018.

Koolaupoko

The Koolaupoko area, located along Kaneohe Bay, is a mere half-hour drive from Honolulu, offering all the conveniences of Hawaii’s largest city juxtaposed with the island state’s natural tropical beauty. A twice-a-week farmers market and the nearby Windward Mall offer convenience for locals, and nearby parks, such as Kualoa Regional Park, provide public access to the scenic beaches.

What the locals say

“The commercial real estate industry is really healthy here. I don’t know if I want to use the word ‘hot,’ but there are some sectors that are hotter than others. [Hawaii has] very strong industrial demand [and] very low industrial vacancy. … [The office sector] is the one market that’s really not firing. It’s really not a lack of demand. It’s … [that] employers are just trying to put their employees in a smaller footprint.”

c_2017-03_Spotlight_local

James M. Brown 
President,
Hawaii Commercial Real Estate LLC 


 

Steven Wyble is editor of Scotsman Guide Commercial Edition. Reach him at (800) 297-6061 or stevenw@scotsmanguide.com.

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