Paradise lost? Hardly.
Even with some interruptions impacting the retail market in the Waikiki neighborhood of Oahu, market watchers appear to largely be shrugging them off — and so are the brands that continue to ink deals there.
“I would describe [the market activity] as both up and changing,” said JLL senior vice president Wendell Brooks, who is based out of the firm’s Honolulu office. “There are certain avenues and streets in Waikiki that will always command tremendous rents and the best retailers in the world as evidenced by a brand new flagship Tiffany store and a brand new flagship Hermès. That is the miracle walk of Kalakaua [Avenue]. There is some softening as you go away from the core. Rents are down a bit; vacancies are up a bit.”
Challenges persisted in the back half of last year with fewer international visitors coming to the island who were also spending less, driven by weak exchange rates and the strained U.S.-China relationship. The vacancy rate increased to 10.5 percent, while the needle on overall asking rates stayed about fixed, according to a second-half 2018 report on the Waikiki urban retail market from CBRE. The research report focuses on the core Kalakaua Avenue area running from the 2100 block to 2400 block.
CBRE’s projecting visitor arrivals for the overall Hawaiian market this year to be 10.15 million, up from last year’s 9.95 million with the first quarter of this year seeing visitors rise 1.8 percent in February. Spending was still off 2.4 percent.
“We’ve just come off about a $2 billion spend on hotel upgrades in Waikiki. There are several new towers that are about to start construction, which has not really happened in many years,” JLL’s Brooks said. “The city is spending a lot of money on the public walkways and common areas and upgrades to streets and sidewalks, so I think we’re going to be fine. We usually are. This is more than likely a temporary glitch in a small part of Waikiki.”
Reiterating on Brooks’ last point, it’s a different story in some parts of Waikiki. The 2300 block of Kalakaua Avenue, often likened to the Hawaiian equivalent of a Rodeo Drive, saw rates rise 20.6 percent to $4.52 per square foot in the final half of 2018, according to CBRE. That was driven by the arrival of Balenciaga and Rolex to the market.
More recent activity continues to shine a spotlight on the core of the avenue, which only continues to bolster its longer-term position as a coveted location to not only tap a strong local shopper base but visitors from Asia and beyond. Last month, Hermès expanded its footprint at the Royal Hawaiian Center in Waikiki, ballooning from 8,700 square feet to 13,000 square feet across three floors. Elsewhere at the center, Fendi opened in 2017, while Tiffany & Co. last year relocated to Royal Hawaiian to take up 11,226 square feet. About a mile away from there, at the Ala Moana Center, Hermès renovated and expanded its door in 2017, followed by Dior Homme last fall, a two-story Uniqlo flagship earlier this year and an incoming wave of digitally native brands from men’s shorts brand Chubbies to organic clothier Hope & Henry. Then there’s Alexander McQueen which is also set to open its first and only boutique in the state.
“I would characterize the market overall, particularly for Ala Moana, it’s brisk,” said Kirsten Lee, senior vice president of retail leasing at Brookfield Property Partners LP, which owns the center.
Ala Moana, which celebrates its 60th anniversary Aug. 13, sits in a unique position much like the rest of the Waikiki submarket. Lee said demand has remained consistent at the center and broader area.
The mall opened in 1959 with 87 stores across 680,000 square feet of retail. Today, the center stands at 2.4 million square feet and 350 stores. Interestingly, seven of those tenants have been there from the beginning, including a Longs Drugs and Foodland Farms.
At Taubman Centers Inc.’s International Market Place, also on Kalakaua Avenue, the property expects nine new tenants this year, which the company said ranges from luxury to fast-fashion players. Recent openings include Balenciaga in November and Drybar the following month.
“Space in the heart of Waikiki continues to be in strong demand and there is very little space available right now,” noted Taubman Centers’ chief operating officer Bill Taubman.
Despite the brands clamoring to be in the market, rents aren’t skyrocketing.
“They’ve always been very strong and so it’s always been a function of availability,” said Kelli Wilinski, first vice president in CBRE’s Honolulu office. “So we’re still seeing a fairly strong rental rate. I wouldn’t say we see a lot of rising just because there’s not that much available.”
In the case of Kalakaua, demand is concentrated in a two-block area.
“There’s always been so much demand for that area of Kalakaua Avenue because it’s a fairly finite segment,” Wilinski said. “What’s happened over the past number of years is, in a way to try and accommodate more brands and create more space, you see a lot of the tenants go two or three levels with a little bit of a smaller storefront so you can accommodate more brands or more stores.”
Tiffany and Hermès are good examples of that trend, she pointed out.
For luxury brands who hadn’t yet expanded to Asia, Hawaii historically functioned as an access route to that market given the visitors coming to the islands. Even with some softening, the market still maintains that’s position and those brand strategies still hold.
The shift that may be coming in the next few years would be new entrants to the market and also to brick-and-mortar retail as is the case with the wave of digital brands and also higher-end streetwear labels now riding on a wave of growth.
Waikiki and the broader Oahu market appear ready to absorb those prospective tenants.
“It is ripe for that next wave of brands. That’s really going to help expose them and create some visibility for that Japanese visitor to shop those brands,” Wilinski said. “That’s why our flagship luxury did so well for a lot of years because it was before they had opened in Asia. So for some of those global brands who do want to have the ability to plant their flag or reach an Asian customer, they can come to Oahu.”