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The Pacific / SPOTLIGHT ON THE HAWAIIAN ECONOMY

Islands Hopping : Hawaii Is Sun-Kissed Again as Tourism, Retailing Revive

July 25, 1996|SUSAN ESSOYAN | SPECIAL TO THE TIMES

HONOLULU — After sputtering for several years, Hawaii's economy is finally shifting into gear, thanks to a renewed influx of free-spending Asian tourists and bargain-hunting hotel investors.

Slapped on two sides by the recessions on the U.S. mainland and in Japan, tourism-dependent Hawaii has lagged the nation's economic recovery in the last few years.

But an upswing in visitor arrivals, a retailing explosion and renewed investor interest are finally giving the local economy some juice.

"It has been a long struggle," said Stanley Hong, president of the Chamber of Commerce of Hawaii. In particular, "our international tourism is really the bright spot, the engine that is driving the recovery." Tourism accounts for a quarter of the state's economy and almost a third of its total employment.

Tourist arrivals from Japan--now 30% of the island's visitors--reached a record high last year and are topping even that pace this year. New visitors from Australia, New Zealand, South Korea and Taiwan helped make up the decline of Japanese tourists in the early 1990s, but non-Japanese tourist numbers fell last year.

After stumbling for five years, the number of visitors from North America has finally risen over the last six months. Altogether, tourist arrivals this year are expected to surpass the record high of slightly less than 7 million reached in 1990, before recession, higher air fares and competition from other resorts knocked the bottom out of the tourism market.

Meanwhile, the precipitous drop in resort property values--10% to 20% in many areas--that accompanied the recession is attracting new players, and new money, to the islands. Investors from South Korea, Taiwan, Hong Kong and the U.S. mainland are snapping up hotel properties at a fraction of their original costs from debt-ridden owners, mostly Japanese and other offshore investors.

"In general, I think the wave of transactions we are seeing will be healthy for the local economy," said Ann Bouslog, director of real estate and hospitality consulting for KPMG Peat Marwick. "What you are doing is bringing new capital to the state and often reorienting a 1970s- or 1980s-style facility to a '90s market."

Because of lower overhead, the new owners can afford to pump in money for renovation and hiring. A prime example is Colony Capital Inc. of Los Angeles, which bought the former Ritz-Carlton Mauna Lani last year for $75 million, roughly a third of its original development cost. It is spending another $20 million to renovate and reshape the property, now known as the Orchid at Mauna Lani, to give it more of a Hawaiian feel.

"By buying for less than 40 cents on the construction dollar, Colony has leeway to make the necessary improvements to the property and make it one that can work in the '90s," Bouslog said.

Four other major hotel sales, all at substantial write-downs, are now in the works, according to Bob Hastings, president of the appraisal firm Hastings, Conboy, Braig & Associates Ltd. Two undeveloped hotel sites at Ko Olina on Oahu sold recently for roughly a seventh of their 1988 price, just the latest in a string of deeply discounted resort sales here.

Hotel investors aren't the only bargain hunters combing Hawaii's shores. Japanese tourists, who spend nearly three times more per capita than other visitors, have fueled an unprecedented retailing binge.

"Especially on Oahu, tourism is much more retail-driven than before," Bouslog said. "In Waikiki, there are some stores within hotels that are earning more than the hotels themselves. A few prime locations have gross sales of as much as $15,000 per square foot annually, while the national average is around $285."

By selling to Japanese nationals while they are visiting Hawaii, retailers can sidestep barriers to Japan's own market. Often, a chain's Hawaii outlets quickly become its top performers worldwide.

Designer boutiques are only part of the story. Discount retailing, which reached Hawaii in the '90s, has proved a hit with visitors as well as local residents. Waikele, a suburban factory outlet center, has become a major tourist attraction.

"The new phenomenon in Hawaii is this incredible explosion of retail opportunities," said Paul Brewbaker, chief economist for the Bank of Hawaii. "It's not just for the tourist, but the most stunning success has been the Japanese market.

"My favorite story . . . is that the typical office lady or honeymooning couple from Japan will save enough by shopping for essential household goods at Waikele to pay for their trip," he said.

In the urban core, retailers have ambitious plans to double the 4 million square feet of retail space that now runs from Diamond Head through Waikiki to the edge of downtown Honolulu, according to commercial real estate consultant Stephany Sofos, president of S.L. Sofos & Co.

"It's pretty amazing," she said. "Even if only 50% of it comes to fruition, that's a lot. They are planning to make Hawaii the shopping mecca of the Pacific."

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