Maui's lackluster economy continues to take a toll on retailers as the number of stores sitting empty islandwide hit its highest level in 13 years.
The island's retail vacancy rate has swelled to 10.7 percent, according to a new report by Honolulu-based commercial real estate firm Colliers International. Contributing to the increase was a loss of nearly 203,000 square feet of retail tenancy over the last 12 months.
The report said Maui's dependency on tourism leaves the local retail industry vulnerable.
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A sign advertising office space for lease is seen Sunday in front of One Main Plaza in Wailuku.
The Maui News / LEAH SHERMAN photo
"The global financial crisis, which dampened recreational travel, hurt Maui's economic engine: tourism," the report said.
For example, West Maui - with a heavy concentration of resort retail - was responsible for more than half of the loss of retail occupancy over the past five years.
The West Maui market alone has a vacancy rate of 16 percent - the highest among the island's three trade areas. Central Maui has a 7.3 percent vacancy rate, while South Maui is at 10.5 percent.
The health of the visitor industry also impacts the broader community.
"Retail activity is tied to the basic economics of the county. People don't have as much expendable income as they used to," said Marty Kenney, Colliers' senior manager for leasing and brokerage on Maui. "When residents have jobs and have more money, higher retail sales tend to follow."
Even as the number of empty stores has grown, several large retail developments are in the pipeline that Colliers says will add more than 1 million square feet of new space to Maui's retail landscape over the next few years.
Those include the planned Maui Outlets, a 300,000-square-foot shopping center, and Piilani Promenade, a 400,000-square-foot complex. Both projects are under construction in Kihei off Piilani Highway. Developer Eclipse Development Group expects the centers to open in early 2014.
Colliers pointed to the developments, as well as the planned mixed-use Downtown Kihei project, as positive signs of returning confidence in the market.
"We're hopeful that proposed developments are indicators that there is confidence in the recovery for the Maui retail marketplace," Kenney said.
Still, the report notes that "tenant demand remains weak as many spaces have remained empty for more than a few years."
Retail rents on Maui declined for a fourth consecutive year, the report said.
"The greatest declines in rent were felt in West Maui, where many Lahaina retail centers registered a more than 25 percent drop in asking rents over the past four years," the report said. "Over the past year, West Maui retail centers experienced a 17 percent decline to their average asking base rent."
Some landlords have become increasingly motivated to secure tenants, including offering deals for percentage-rent only (based on a percentage of sales), short-term leases or free rent.
"Certain properties are doing better than others, and some retailers haven't had to go that route," Kenney said. "Others have had to be creative and provide free rent or different kinds of terms to try to get people in. A property is only as strong as its tenants."
The report was upbeat about the months ahead as Maui's visitor market rebounds.
Maui saw $1.58 billion in visitor spending year to date through May, according to the most recent data from the Hawai'i Tourism Authority. The spending represents a 16.6 percent increase over the same period last year.
On average, visitors to Maui are spending $200 per day, up from $184 last year.
Visitor arrivals to Maui are up 6 percent year to date.
"Recent improvements are being seen across the board for the island's airlift capacity, air passenger arrival counts, tourism expenditures and hotel occupancy rates," the Colliers report said. "The hope is that the travel sector recovery will translate into improved market conditions for not only resort retailers, but also for the rest of the island's retailers."
The island's largest mall, the Queen Ka'ahumanu Center, acknowledged soft conditions over the past year, but officials there anticipate a turnaround.
The mall already welcomed six new vendors so far this year, including L&L Hawaiian Barbecue, Mina Pharmacy and Two Peas in a Pod, said Lisa Paulson, marketing manager for the center.
Following successful talks at this year's International Council of Shopping Centers convention in Las Vegas in May, Paulson said the mall's leasing agents are in active negotiations for 50,000 square feet of new tenancy for the Queen Ka'ahumanu Center, which has about 110 retailers.
"I think we've got real positive momentum going into the future," she said. "The increase in tourism has led to people getting their jobs back. It passes on and contributes to us because they're able to shop."
Colliers also looked at Maui's real estate inventory for office space.
The island saw a third consecutive year of so-called negative net absorption, meaning occupied space that became vacant.
Maui's office vacancy rate increased slightly to 15.8 percent, following the loss of 1,700 square feet of tenancy islandwide over the last 12 months, Colliers said.
The Wailuku market lost the most space: 3,700 square feet in the Mill Yard Plaza, Kolu Street Complex and One Main Plaza office buildings.
Kahului saw vacancies totaling more than 1,100 square feet.
South Maui helped offset some of the losses by posting nearly 3,000 square feet of new occupancy at Park Plaza, Kihei Plaza and Dolphin Plaza.
The report had a "wary outlook" for the future, citing weak tenant demand.
"Colliers forecasts that Maui's office market will likely remain at or near its current levels for the next year," the report said. "Typically, office-using industries are among the last sectors to show a recovery after an economic downturn. Additionally, job growth needs to be sustained over a period of time before employers actually seek to expand and secure additional office space for their workforce."
* Nanea Kalani can be reached at nkalani@mauinews.com.
