to open shop

Strong market conditions are likely
to encourage more retailers to come
to Hawaii than seen before

More retailers will enter Hawaii's market than ever before as great market conditions, a strong job rate and tourism growth propel investors to show increased confidence in Hawaii.

An attractive market has prompted several major retailers to move ahead with plans to enter Hawaii, and retail vacancy rates, which dropped 18 percent in 2003, are expected to fall another 10 percent to 5.3 percent as conditions continue to improve, said Jeffrey Hall, senior director of research at CB Richard Ellis Hawaii.

"2004 and 2005 will be the best years ever for real estate investment in Hawaii," Hall said, adding that the state continues to outpace the nation in economic growth and real estate activity.

The Hawaii commercial real estate market is outpacing the national market, Hall said, adding the trend will continue into late 2004 and 2005, with record years predicted. Nearly 1.2 million square feet of shopping center space changed ownership or was leased in 2003, and vacancy rates declined in most Oahu markets with an overall drop of 1.3 percent from 7.2 percent at the beginning of the year, he said.

Absorption of retail space doubled in 2003 to 180,000 square feet with most occurring on Oahu. However, the largest year-over-year gains were on Kauai and in the resort center category, Hall said.

"A great example is Koko Marina Shopping Center, which saw occupancy go from 86 percent to 97 percent after changing ownership in 2003," Hall said. The shopping center saw positive gains from several restaurants including Kona Brewing Company, Teddy's Bigger Burgers and Jamba Juice, he said.

As the strengthening market causes more retail properties to change hands and more retailers to enter the market, rents will rise and vacancy rates will drop, setting in place perfect conditions for new development, said Andres Albano Jr., a vice president for CBRE.

"Economically this next year is going to be very exciting and interesting to watch," Albano said. "Interest rates are low, the economy is strong and there's plenty of confidence in Hawaii, which is being seen more and more often as a pro-business state."

Waikiki underwent much change in 2003, and Hall expects more investors will continue to move into this retail market as they see the region benefit from an increasing number of westbound visitors and an expanding time-share market.

The Cheesecake Factory opened in Waikiki in December and is already a top performer. Current projections estimate gross sales as high as $20 million for this year, Hall said.

The success has prompted Round One, a Japanese entertainment company, to begin planning a seven-story entertainment complex between Saratoga and Beach Walk, just off Kalakaua Avenue. The center, which is designed to appeal to a rebounding Japanese tourist market, will feature video games, bowling, darts and karaoke, Hall said.

Other Waikiki/urban Honolulu projects include a 250,000-square foot renovation at Victoria Ward Centers, which will be completed in 2005; construction of a 100,000-square-foot retail/entertainment complex at the Outrigger Beach Walk Project, which is set for a 2006 opening; and the possible redevelopment of 1.2 million square-feet at the Old Fisherman Wharf area at the Kewalo basin, Albano said.

As long as interest rates remain low and demand for retail, industrial and office properties outstrips the supply, all commercial real estate sectors in Hawaii will remain on fire, real estate professionals and economists predicted. And, if mainland real estate prices continue to rise and investors continue to shy away from falling stock market returns, more capital will continue to float into Hawaii's market, said Mark Bratton, president of Bratton Realty Advisors Ltd.

"The stars are finally aligned for this market," said Bratton, who spoke at a Friday symposium of the National Association of Industrial and Office Properties.

New developments to watch are the Wal-Mart Keeaumoku development near Ala Moana Center and the 61,000-square-foot Kunia Shopping Center development, which is not even out of the ground but is already 50 percent committed, he said.

Projects such as the Ewa Pointe Shopping Center, the redevelopment of the Royal Hawaiian Shopping Center and the International Marketplace as well as the Outrigger Beach Walk will also have positive impacts on this market, Bratton said. And there's talk that market conditions have enticed several new tenants, including big-box retailer Best Buy to enter Hawaii, Albano said.

Consumer electronics giant Best Buy is moving ahead with plans for its first Hawaii store. The company has announced plans to open a 50,000-square-foot store sometime in 2005 at the intersection of Kamehameha Highway and Kanuku Street, just blocks from a rival Circuit City store at Pearlridge Center.

There are also reports that the company is in discussions to purchase property and establish a second Hawaii-based store in Iwilei, across from Home Depot, Albano said.

While Best Buy would not confirm talks, officials are always looking for potential expansion sites, said Jay Musolf, spokesman for Best Buy.

There is also talk among brokers that several new tenants including Cost Plus Imports, an E & O Trading, a Jillian's Entertainment, Linens & Things and Fox Sports will soon enter the market, Albano said.


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