Waikiki renaissance has begun

The Outrigger's $535 million project is exceeding its expectations with the Trump Hotel opening yet to come in 2009

STORY SUMMARY »

One year after the Outrigger Enterprises Group finally took the leap and put $535 million into overhauling Lewers Street, the Waikiki Beach Walk project is pretty much complete. The new Embassy Suites are open as are the Wyndham time-shares, and more than 40 new shops and restaurants, signaling the start of the Waikiki renaissance.

Mainland chain restaurants such as Ruth's Chris Steakhouse and Yard House are doing well, and pulling in good sales-per-square-foot revenue.

Some retailers, on the other hand, are facing a slower economy and declining visitor numbers compared to when the Beach Walk broke ground in 2005.

Nevertheless, Outrigger is proud of its accomplishments and having few regrets about its investment, according to Barbara Campbell, vice president of retail development and leasing.

Outrigger is anxiously awaiting the completion of the Trump International Hotel & Tower in the fall of 2009.

Hawaiian music also will become a center theme of Outrigger's Beach Walk, featuring regular concerts, hula and entertainment.

Beach Walk events » Ku Ha'aheo, To Cherish with Pride: Free island entertainment Tuesdays, 4:30 to 7 p.m., plaza lawn. » Na Mele No Na Pua "Music for the Generations:" Concert series, scheduled on various Saturdays, 4 to 5:30 p.m., Embassy Suites grand lanai.

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One year later, Outrigger Enterprises Group's $535 million Beach Walk project is almost 100 percent complete.

The escalators are running, the Embassy Suites hotel is open, as is the Wyndham time-shares, and more than 40 new shops and restaurants.

All that remains is for the Trump International Hotel and Tower to be completed in August of 2009 -- an opening date the Outrigger is anxiously awaiting as the final component to the project.

But all in all, Outrigger is having few regrets about the investment it has made.

Outrigger declined to share specific revenue, but its target goals are being met, according to Barbara Campbell, Outrigger's vice president of retail development and leasing.

"We've actually exceeded our expectations," said Campbell. "For a lot of us, when we opened last December and saw (Beach Walk) start to take shape, it was way beyond our expectations."

The first retail store to open was Freaky Tiki Tropical Optical, which opened Dec. 9, 2006, the same day as the Embassy Suites. Dozens of other store openings would follow in the next few months -- from Coco Cove to Banana Wind.

More than half of the new retail space at Beach Walk was set aside for restaurants -- and the strip can boast of several anchors, including Roy's, Yard House, Ruth's Chris Steak House and Holokai Grill.

There is also a variety -- ranging from Taormina Sicilian Cuisine to Kaiwa, a modern teppanyaki and sushi restaurant from Tokyo.

Coconut Willy's Bar & Grill, a mainstay at the International Market Place, is opening a second location at Beach Walk this month.

The Beach Walk Willy's, measuring 3,400 square feet and larger than the one at Market Place, will be open until 4 a.m.

Coconut Willy's President David J. Kenney says the Market Place bar will cater to old-time Waikikians, while the Beach Walk bar will target a younger crowd, with live music and a Tiki bar.

RESTAURANTS GALORE

The performance of Beach Walk restaurants vary.

Lunchtime may be a bit slow for some sit-down establishments, but the mainland chain anchors are reporting stellar numbers.

Randy Schoch, chief executive of Desert Island Restaurants and operator of Ruth's Chris Steak House, says the Waikiki location has quickly risen to the top-performing one in the islands since it opened last March.

Desert Island has five Ruth's Chris restaurants in all -- two on Oahu, two on Maui and one on the Big Island.

"We're really pleased with our sales," Schoch said, estimating the Waikiki Ruth's Chris pulls in just about $1,000 per square foot. "What also surprises me is the amount of local people we have there -- more than 50 percent."

While Schoch didn't expect the Waikiki restaurant to cannibalize the Ruth's Chris at Restaurant Row (sales there dropped 25 percent), he's also pleasantly surprised.

"Now we're finding for the first time in 15 years that locals are returning abundantly to Waikiki," he said. "It's new, it's sexy and fun, and I think they've done a good job of ingress and egress. People can get in there without too much of a hassle."

Retail shops, on the other hand, are facing an economy today that is not quite the same as the boom times of 2005, when the project first broke ground.

Some retailers say they wouldn't mind a little more foot traffic.

"We have not achieved our original financial projections, and we think the problem is there hasn't been as much traffic as we expected," said Bob Taylor, president and CEO of Maui Divers Jewelry.

Taylor, a veteran retailer, runs both a Maui Divers Jewelry and Island Pearls, a more upscale boutique, at Beach Walk. The bulk of his sales in Waikiki come from visitors, he said, and spending among them is down.

On top of that, gold prices have gone up, translating into higher prices.

"We expect it's going to be another challenging year with the volatility in the stock market and other problems in the U.S. economy," he said. "We figure we just have to continue to get better at what we do."

Taylor said there's no question Outrigger did a fabulous job with the renovations.

"I would say I'm still optimistic that the stores will be successful," he said.

So far, there have been two casualties, but that's to be expected in any major retail project, according to Campbell.

Virtual Turbulence, a small 400-square-foot retailer that offered customers a custom DVD of themselves doing an activity like surfing -- which opened up last summer -- has since closed up shop.

But almost immediately, it was replaced by the Thor Stor, an art gallery featuring whimsical tiki paintings.

Another boutique, Bernards of Hawaii, on the second floor, also shut down recently.

The owner, from California, had envisioned a hip, new boutique featuring beauty products and fashions. But in the end, Bernards just wasn't the right fit and he decided to return to California, according to Campbell.

The Bernards space, offering about 1,000 square feet, is now up for lease. Campbell is confident it will be filled soon.

"When we leased all these spaces, we took a few risks," she said. "We wanted some shops that would be unique and eclectic. We'll continue to refine our market mix."

FALLING VISITOR NUMBERS

Visitor numbers are flattening out -- a fact that all retailers and hotels in Waikiki will have to face this year.

Bank of Hawaii chief economist Paul Brewbaker forecasted a non-rosy outlook for the future of the state's tourism.

"This year will be a bit dicey for Hawaii retailing because of tourism," said Brewbaker, "especially because the international visitor is evaporating despite the dollar getting cheap, while what had been a mainland offset is dwindling as domestic tourism growth wanes."

Local consumers, meanwhile, are hunkering down due to higher energy costs and, in part, because of negative economic news reports in the media.

Campbell said despite the drop in visitor numbers, the Beach Walk retail revenue still managed to come through strongly in the first half of 2007.

"It's going to be a little challenging," she said. "We had our first great year and believe we'll continue to capture a good market share."

Mike Hamasu, research director for Colliers Monroe Friedlander, doesn't anticipate a severe drop in retail rents in the near future.

While ground-floor retail space in central Kalakaua command up to $30 per square foot per month, the new Beach Walk ranges somewhere between $15 to $25 per square foot per month.

"There's still a shortfall of prime space in Waikiki," said Hamasu. "There may be some softening, but we don't foresee a huge decrease in asking rents in that market in the near term."

Part of Outrigger's goal was to bring locals back to Waikiki with the new Beach Walk. If the numbers tenants are reporting are accurate, then this is indeed happening.

Steele Platte, CEO and founder of Yard House, says surprisingly, locals make up close to 70 percent of his business. The Super Bowl was a case in point, when hundreds filled the restaurant to watch the game.

The Yard House is reaching its projected sales of more than $12 million in its first year. Waikiki Yard House ranks among the top five in the national chain.

Retail analyst Stephany Sofos said visitors are getting "construction fatigue."

They're tired of stepping around major construction projects, she said, whether it be the Trump Tower, the Royal Hawaiian Shopping Center next door, or at Ala Moana Center.

Hard Rock Cafe is also joining the neighborhood construction, with plans to anchor a new retail center at 280 Beach Walk (not part of Outrigger's project).

Once all these projects are completed, though, she predicts the synergy will generate some really good revenue numbers.

Waikiki Beach Walk DEVELOPMENT TIMELINE 2005 » April 1: Waikiki Beach Walk breaks ground 2006 » Dec. 1: Wyndham Vacation Ownership opens » Dec. 18: Embassy Suites opens first retail store, Freaky Tiki Tropical Optical » March 22: Ruth's Chris Steak House opens 2007 » Jan. 11: Hawaiian blessing, groundbreaking of Trump Tower Waikiki » Feb. 9, 2007: Yard House opens » April 2007: Launch of Na Mele No Na Pua concerts with Eddie Kamae; Roy's Waikiki opens; Mana Hawaii opens » Aug. 20: Quiksilver opens at entrance to Beach Walk 2008 » February: Coconut Willy's scheduled to open 2009 » August: Expected completion of the Trump Tower Source: Outrigger Enterprises