COVER STORY, JULY 2007

ALOHA ACTIVITY
Lifestyle retail development surges in Hawaii.
Kim Lord

In the Hawaii retail sector, what’s hot is lifestyle… uniquely Hawaiian. Developers know that the lifestyle trend that is hot all across the country, appealing to new upscale consumers, works in Hawaii, too, especially when you include the unique culture and Pacific design in the mix.

Waikiki Still Has Magic

Billions are being spent in Waikiki to keep the magic of the islands appealing to the new tastes of travelers. Outrigger Enterprises is completing the largest new development in Waikiki’s history on eight acres. The Waikiki Beach Walk has hotel rooms and condominium units offered by Outrigger, Wyndham, Trump and Embassy Suites. With the increased room and apartment rates come residents and visitors with more disposable income. To support this growth, there are new retail shops, restaurants and fresh island-style ambience.

The 2.5 miles of famous Kalakaua Avenue now offers virtually every major high-end retailer in the world including Tiffany, Bally, Cartier, Louis Vuitton and Gucci. New to the Waikiki lifestyle scene are American brand successes such as Hugo Boss, Kate Spade, Juicy Couture and Lucky Brands. Hawaii developments have to be very precisely underwritten because of the steep cost of land and high construction and build out costs.

The Royal Hawaiian Shopping Center, a redevelopment project by Kamehameha Schools, will soon complete a 3-year transformation inspired by classical Hawaiian architecture. The $84 million renovation adds new high-end retail flagship stores such as Ferragamo, Hermes and Bvlgari. While retaining more than 290,000 square feet along Kalakaua Avenue, there are now open views into the Royal Hawaiian Hotel’s grove of coconut trees and garden, allowing people a friendlier place to walk, shop and play.

Both these Waikiki redevelopments highlight upscale, contemporary themes demanded by today’s travelers who want a spa, specialized shopping, innovative food and sophisticated service all within short distances. What connects all the Waikiki redevelopment is the desire to also respect and integrate the host Hawaiian culture into the design and execution. 

Oahu Beyond Waikiki

Kapolei Commons on the island of Oahu

Developers are still keen on the Hawaii market because retailers continue to satisfy the incredible appetite of consumers. Developers have plans to add 25 percent to the retail space on Oahu by the end of 2009. Despite the cost challenges, The MacNaughton Group, Metric Holdings and Ken Hughes are moving forward with projects because it is not uncommon to see 20 to 25 percent increases in sales in Hawaii for retailers as compared to mainland locations. Despite operating costs that may exceed mainland costs by 12 to 15 percent, there are still very positive margins for retailers.

Westwood Development Group recently acquired and will develop Laulani Village, the largest shopping center in West Oahu at 260,000 square feet. Target has announced its first Oahu store near the Honolulu Airport with another store later in West Oahu and possible openings on the Neighbor Islands as well.

General Growth Properties continues to redevelop in the Ward Village complex as part of a larger urban village concept featuring specialty shops like Whole Foods, Old Noritake Hawaii and Satura Cakes. The Place in Ward Center, for example, is a specialty boutique with “lifestyle centers” that reflects themes of rock ‘n roll, yoga and bling bling. The Ward campus also features fresh dining choices including Wahoo’s Fish Tacos, E&O Trading and P.F. Chang’s China Bistro at Hokua.

Two blocks away, Nordstrom is building a store that will have a bridge connecting to the Ala Moana Center, the world’s largest outdoor shopping center with more than 260 stores and 70 restaurants.

Retail Leveling

The retail market is still good in Hawaii, but leveling off this year. The state’s retail vacancy is at about 4 percent. Low unemployment continues to challenge all businesses searching for qualified employees. Hawaii has the lowest unemployment rate in the country at 2.4 percent.

Developers are moving ahead in several key locations in the state principally due to the availability of land. The most interest is on the Kona coast and Waikaloa on the Big Island of Hawaii and on Maui. There is also significant retail development planned on Kauai.

Big Island

The most aggressive development activity on the Neighbor Islands is on the Kona (west) coast of Hawaii Island. Lifestyle again is the key in Kona because residential properties have been sold for high prices but almost 90 percent of them are yet to be built out. More than $40 million in county bonds will be spent on infrastructure in West Hawaii.

Kona Commons on the Big Island of Hawaii

Developers are planning an open-air regional mall called Kona Commons just north of Kailua-Kona village. When completed it would have 700,000-square-feet of store space available. The project is being developed by The MacNaughton Group in partnership with Kobayashi Group on 65 acres of land leased from the Queen Liliuokalani Trust.

Along the world class Kohala Coast, Queen’s Marketplace is being constructed in the Waikoloa Resort, and the debut opening of The Shops at Mauna Lani on the famed Mauna Lani Resort boasts 80,000 square feet of resort and lifestyle dining and merchandisers such as Tommy Bahama’s Café & Emporium, Ruth's Chris Steakhouse and island favorites such as A`ama Surf and Lahaina Galleries.

Maui

Mainland retailers are being drawn to Maui because of the growing affluence as seen by the rising personal incomes on the island. Retail vacancy is at a historical low of 4.6 percent. Six new shopping complexes are possible within a few years. Alexander & Baldwin Inc. is redeveloping 20 acres into a mixed-use residential, retail and commercial town center. The project will divide into 4 blocks dissected by a pedestrian main street with more than 144,000 square feet of retail space. Residences will follow along with commercial space designed for urban living.

Two new buildings, with more than 33,000 square feet, will be added to the Lahaina Cannery Mall, the island’s only fully enclosed air-conditioned mall, and the retail space will add a lifestyle component to the local Lahaina feel already in place.

The Lahaina Gateway lifestyle center, being developed by Bilarjo, aims straight for the contemporary lifestyle trend with 145,000 square feet of retail space anchored by Barnes & Noble and Ohana Farms, an upscale grocery. It will be the only lifestyle center in West Maui.

Kauai

Capital is flowing into Kauai, resulting in thousands of new hotel, condo, timeshare and luxury home units. Four existing retail centers — Kukui Grove, Kukui Marketplace, Coconut Marketplace and Princeville Center — are repositioning to appeal to the rapidly increasing number of affluent consumers available. There are also five new retail centers totaling 500,000 square feet attempting to come on line, including Alexander & Baldwin’s retail component of a master-planned development, Kukuiula.

Like the sun moving west, the hot upscale lifestyle retailers have come to Hawaii; but they have incorporated the culture of the Pacific that makes it unique in all the world.

Kim Lord is a senior director for CB Richard Ellis Retail Services in the Aloha State.


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