Maui retail vacancies hit record high in 2018
Report shows that new, existing retailers moving to new malls
A record percentage of retail space vacancies, driven in part by bankruptcies of national big-box chains, and a migration of existing and new retailers to newer malls on the eastern fringes of Kahului are among the highlights in Colliers International 2018 commercial real estate report for Maui.
Islandwide retail vacancies hit 17.2 percent in 2018 — and were even worse in Central Maui at 23 percent. The Maui percentage was a 1.6-point increase over 2017 with a loss of 58,000 square feet of leased tenant space year over year, according to the Colliers annual research and market report for Maui released earlier this month.
Another trend is forming with large national tenants “leading a retail transition in Central Maui,” the report said. Either through relocation or new construction, retailers such as Petco, Target, Planet Fitness, Verizon Wireless and Ulta Beauty have moved into the new Pu’unene Shopping Center.
Lowe’s, which opened across the street from Target, and Petco and Verizon Wireless vacated the nearby Maui Marketplace, which has been hit in recent years by the loss of Sports Authority and Borders Books due to bankruptcy of their national chains.
“The fallout of these relocations is the empty storefronts among Central Maui’s older retail centers,” the report said.
When asked if the older malls in Central Maui, like the Maui Mall and Queen Ka’ahumanu Center, will be hurt by this trend, Charles J. Buckingham, vice-president of Colliers International, said that that is “a fair assessment.”
“With Central Maui retail vacancy hovering at 22 percent, certain properties are going to feel more pressure than others,” he said.
The opening of Alexander & Baldwin’s Ho’okele Shopping Center later this year at the corner of Hookele Street and Hana Highway in the A&B Business Park on the outskirts of Kahului, will only add to the pressure. Safeway market will be moving from its central Kahului location across from the Maui Mall to the new center, which could open in September or October, said Buckingham.
The Ho’okele and Pu’unene shopping centers mark a move of retail operations to the outskirts of Kahului.
“It is amazing how much new retail product has been built in the last five years and the migration path which started with Maui Marketplace 20-plus years ago continues to move that direction,” Buckingham said.
One benefit of the location is that the area has become a crossroads for travel between Upcountry and East, South, West and Central Maui. Hana, Kuihelani and Maui Veterans highways, along with Airport Access Road and Puunene Avenue all converge in the area.
“The new developments of Ho’okele Shopping Center and Pu’unene (Shopping Center) have definitely created a new shopping convenience for patrons coming from Upcountry and South Maui,” Buckingham said.
The report provided other commercial real estate highlights for 2018, including a tight industrial space market with a 1.3 percent vacancy rate and a healthy commercial investment market with a 44.5 percent increase in sales volume.
The largest investment transactions in 2018 included BRE RC Maui Kapalua LLC, a Blackstone Group subsidiary, acquiring The Ritz-Carlton, Kapalua from RC Kapalua Owner LLC for $275 million. Blackstone Group, a New York-based private equity group, also recently purchased the Turtle Bay Resort on Oahu and the Grand Wailea.
The sellers were a partnership between Areas Management LP, SMW Hospitality LLC and Trinity Investments LLC, which bought the hotel in 2016 for $210 million. The October sale alone represented 39 percent of the total investment dollar volume for the year, the report said.
The second largest transaction by dollar amount was the 41,000-acre land sale by A&B Properties to Mahi Pono for $262 million. Mahi Pono is a joint venture between Pomona Farming and the Public Sector Pension Investment Board, one of Canada’s largest pension investment managers.
The Pu’unene Shopping Center sale by Terramar Retail Group to an A&B subsidiary was estimated at $62 million, the report said. The 113,000-square-foot shopping center was part of a three-property deal also involving Laulani Village on Oahu and Hokulei Village on Kauai for a total of $254 million.
Other large sales in 2018 included an 11-acre parcel on Makena Road by Hawaii Development LLC to Everett Dowling’s Keaka LLC for $20 million; the Lahaina Square Shopping Center by A&B Properties to Boschetti, Giampaolo and Walden Donna et al. for $11.3 million; and a 1-acre industrial lot on Dairy Road by Cycle City LTD Wholesale Motors Inc. to 150 Dairy Rd. LLC, a Finance Factors subsidiary, for $6.4 million.
There were no international transactions in 2018 with sales involving Mainland companies accounting for 84 percent of the total volume, the report said.
There was a “severe warehouse shortage” in 2018 with the vacancy rate at 1.3 percent, and the situation is projected to even tighten slightly this year, said the report. Although there is a projected growth in construction overall, there is no new warehouse development planned, the report said.
“Without a pressure valve to release pent-up demand, rental rates are projected to continue to rise,” the report said.
Colliers said it tracked only 15 industrial space listings with half priced at more than $1.35 per square foot per month.
The retail market remains in flux, having lost more than 228,000 square feet of retail tenancy from 2016-18, the report said. The vacancy rate has more than doubled in the past five years.
The report explained that the island’s consumer market is composed mainly of tourist and residential sectors. As the primary residential population base, Wailuku-Kahului drew the lion’s share of big-box stores and is now suffering the losses of retailers, such as Kmart, Sports Authority and Borders Books.
Central Maui’s vacancy rates jumped from 3.7 percent in the fourth quarter of 2008 at the beginning of the Great Recession to 22.8 in the fourth quarter of 2018, the report said.
The retail vacancy rate in South Maui rose to 12.9 percent in 2018, losing 17,751 square feet of occupancy, the report said. Kihei Kalama Village and Lipoa Center lost a combined 21,000 square feet of tenancy. The losses were offset by gains at the Kukui Mall, which secured leases for a movie theater and sit-down and drive-thru restaurants.
West Maui’s retail market saw vacancy rates rise to 11.7 percent with 3,221 square feet of lost occupancy in 2018. Large vacancies reported at the Outlets of Maui and Old Lahaina Center were offset by strong leasing at the Lahaina Gateway Center and 505 Front Street, the report said.
The Lahaina Cannery Mall has expanded, undergone renovations and is looking to add a gas station and convenience store. “This will benefit the customer base on the west side, the expanded and updated Safeway coupled with the mall renovation,” Buckingham said.
Across the street at the Lahaina Gateway, Ace Hardware and Ross will be relocating there, he said. “These are all pluses for the west side consumer,” he said.
The report says that the Maui retail market “appears to be increasingly susceptible to the ongoing ‘evolution’ with big-box closures and bankruptcies.”
“As many national brands faced financial difficulties and challenging conditions, Maui has also weathered store closures encountered on the U.S. Mainland,” the report continued. “Despite e-commerce’s inroads into brick-and-mortar retail sales, the outlook for Maui’s economy still remains uncertain.”
* Lee Imada can be reached at firstname.lastname@example.org.