BUILDING COMMUNITY IN WAIKIKI
It’s threatening rain on a Thursday morning in late June in Waikiki, but the heat and humidity don’t seem to deter those traversing Kuhio and Kalakaua avenues by foot.
Some, decked out with swimwear and floaties, are clearly headed to and from the beach. Others seem intent on shopping or just taking in the sights. Others, still, look like they’re headed to business meetings.
Waikiki in the summer of 2023 is surely a different sight than Waikiki in the early days of the Covid-19 pandemic, when travel to the Islands was restricted and all but shuttered the state’s primary economic engine: tourism. That meant Waikiki, one of Hawaii’s top tourist destinations, saw significant impacts.
But how has the neighborhood rebounded since Covid-related restrictions – and what does that mean for the people who live, work, visit and invest here?
Pacific Business News set out to see how Waikiki is faring more than three years since the start of the pandemic, now that visitor arrivals and spending are nearing or exceeding pre-pandemic levels.
Robert Finley, chair of the Waikiki Neighborhood Board No. 9, has lived in Waikiki since the mid-1960s.
In the early days of the pandemic, Waikiki was “very quiet,” he said.
“Pretty much nothing happened. Traffic was nonexistent. People were pretty much locked in their homes, only going out for food and whatever they had to go out for. It actually created a situation that, when it was over, we started getting noise complaints because it had been so quiet for the residents,” he said, adding that over the past three years, the neighborhood lost thousands of residents who were working in the visitor industry.
“It had been a thing we saw for years and years, where college-age students would come to Waikiki to basically work industry jobs and party after work, and they all couldn’t afford to live here because nothing was open. So they returned to wherever they came from.”
Waikiki today is a lot slower than it was in 2019, Finley said, noting, the neighborhood has not yet recovered pre-pandemic levels of visitors from Canada and Japan.
“A lot of the hotels are running [occupancy rates] in the high 90s, and people who live in Waikiki that work there are all back on the job,” he said. “But other hotels that specialize in the Japanese market are not running very full and they’re not bringing their employees back because there’s no sense having 50 extra maids when you don’t have a room to clean, which is bad [for] the people who live here in Waikiki and work in the hotels.”
Overall, Finley said the visitor industry is picking up slowly, but it’s “not where it was.”
“I think since Covid, we’ve seen it definitely come back,” said Trevor Abarzua, president and executive director of the Waikiki Business Improvement District Association, a nonprofit organization formed in 2000.
According to the organization’s website, WBIDA is dedicated to making Waikiki “a great place in which to invest, work, live and play,” and works “in partnership with business and government to develop and implement programs that strengthen the physical and economic vitality and help maintain its position as a world-class resort destination.”
“Visitors are up. We’re not quite to pre-pandemic levels yet, but we definitely are trending that way,” Abarzua said. “We’re at a great point in terms of visitors, in terms of people coming in.”
Trevor Abarzua, president and executive director of the Waikiki Business Improvement District Association
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But homelessness and crime increased when things began opening up again, he said.
“So there was definitely an emphasis from a community standpoint, from a resident standpoint, but also from an economy standpoint of ‘we need to do something about this,’” Abarzua said. “We need to clean it up because it could affect the economy.”
The Safe and Sound program – an initiative that includes involvement from WBIDA, Honolulu Police Department, the Prosecuting Attorney’s Office, Mayor’s Office, Waikiki Improvement Association, Hawaii Lodging and Tourism Association and the Visitor Aloha Society of Hawaii – launched in September 2022.
“The emphasis was on keeping Waikiki clean and safe, again, for the residents, for the people [who] are working in Waikiki, the visitors [who] are visiting here, because I think one of the biggest strengths of Hawaii as a tourist destination but also Waikiki is that people do feel safe when they come here.”
Also as part of the Safe and Sound program, habitual crime offers could be ordered to stay out of the Waikiki geographic area. Abarzua said that has been a significant part of reducing crime in the neighborhood.
According to District 6 crime statistics – which come from HPD and were provided by WBIDA – in the first quarter of 2023, following the launch of Safe and Sound, compared to the first quarter of 2022:
Assaults declined 15% (97 compared to 114)
Burglaries declined 25% (24 compared to 32)
Drug and alcohol violations declined 82% (36 compared to 202)
Criminal property damage declined 41% (89 compared to 151)
Robberies declined 64% (9 compared to 25)
Theft declined 16% (501 compared to 600)
Car break-ins declined 32% (61 compared to 90)
Total calls for service declined 10% (11,010 compared to 12,267).
According to a May homeless count report for WBIDA prepared by a team from the University of Hawaii at Manoa’s Department of Urban and Regional Planning, the number of homeless individuals in Waikiki declined 43% in May 2023 compared to September 2022 – 251 were observed in September 2022 compared to 143 in May 2023.
“Statistically speaking, Safe and Sound appears to be working, and all the key metrics as far as crime appear to be down,” Honolulu Mayor Rick Blangiardi told PBN. “… We still have, though, very persistent, chronic criminal types that tend to congregate in Waikiki, who have been arrested multiple times, released for various misdemeanor offenses, many of whom have been given geographic restrictions. They violate those. It’s that element right now that I’m still very much concerned about because, quite honestly, they tend to make people very uncomfortable because they have a tendency to be drunk, act in lewd ways, have been responsible for shoplifting at our stores and different things of that nature.”
Blangiardi, though, said he’s otherwise encouraged by the effectiveness of the Safe and Sound program, noting, too, there’s now probably more police presence in Waikiki than ever before at the city’s request, and the city also has hired a private security task force to augment security from 8 p.m. to 4 a.m. seven days a week “to help ensure that our local residents, as well as our visitors, feel safe.”
But there’s still work to do with Safe and Sound, Abarzua said, “and more on the ‘sound’ part.’” That means working to address the social service and mental health needs of the chronically homeless or houseless populations.
“We’re trying to put resources to that,” Abarzua said, noting that WBIDA, through a grant from the City and County of Honolulu and the Kosasa Foundation, will soon hire a Safe and Sound coordinator, “with an emphasis on mental health and an emphasis on helping people [who] are homeless in the community.”
WBIDA already has outreach coordinators, staffed under WBIDA’s Aloha Ambassadors, who work to build relationships with the houseless in Waikiki and ensure those individuals know about the services and resources available, he said. But the new coordinator position will include street-based work, as well as “taking in this data that we have, analyzing the data and coming up with sort of policy solutions so that we can get more help to the people [who] need it on the streets of Waikiki.”
WBIDA also has 60 safety and custodial Aloha Ambassadors throughout the district, which are paid positions.
Commercial real estate
“I always loved Waikiki and the vibrancy of it,” Mark Bratton, a senior vice president with Colliers International Hawaii, told PBN.
Waikiki’s office market remains “a little soft,” he said. “There’s not a lot of new demand coming in. There are some larger tenants who … [have] a few more years before they can look at downsizing or that kind of thing.”
Office conversions, though, have helped make the market healthy, Bratton said, noting, for example, the conversion of the former Waikiki Trade Center into the Hyatt Centric Waikiki Beach.
COLLIERS INTERNATIONAL HAWAII
According to Bratton, that’s one of the things that led to pre-pandemic occupancy rates increasing and vacancy rates declining. He thinks additional buildings will be converted.
“Waikiki office market is not a very big market, so … a little move, or a medium-sized tenant moves the needle,” he said.
Bratton said there aren’t many “huge demand drivers” for office space in Waikiki, which had 669,915 square feet of total inventory and 109,187 square feet of available space at the end of the second quarter, according to a recent market office report from Colliers.
According to Bratton, about 90% of Waikiki office tenants are resort or visitor related.
The neighborhood’s retail market was “very hard hit” by the pandemic, he said.
It’s a “stunning blow when your entire customer base is shut down for [any] period of time,” Bratton said. “But it is coming back, and like a lot of other places, it’s coming back in food service.”
“I was talking to some of our retail leasing people and they’re like, ‘Oh yeah, I’ve done four or five deals this year already, and you know what? They’re all restaurants,’” he continued. “And whether it’s a 1,000-square-foot ramen or a 4,000-square-foot yakiniku [restaurant] or something like that, one of the things we saw in the pandemic in general [is that] a lot of people couldn’t hang on and all of a sudden, these buildings that had kitchens in them – they’re already existing, already paid for – became very valuable. Those went right away, even in Waikiki.”
When asked about the outlook for Waikiki’s real estate market in the year ahead, Bratton first looked back.
“From the beginning of this year, things have firmed up,” he said. “Hotels have been able to drive rates higher in Waikiki and there’s more people coming. So looking forward, the Japanese [visitors] are going to come back. Most people I talk to say it’s the end of the year, next year. Some hopeful ones think it’s in September, but most are writing their business plans for next year. That will cause competition for those dollars and maybe price out some of the lower-end west-bound visitors, so we’ll get a little more of our high-end market back.”
Bratton said for the commercial real estate market, that will drive rates.
“More traffic, more possibility of sales and then eventually, more gross sales translates into higher rent.”
Investing in Waikiki
Waikiki is familiar territory for developer B.J. Kobayashi, chairman and CEO of BlackSand Capital and a founding partner of Kobayashi Group.
BlackSand acquired the Waikiki Galleria Tower in 2021 for $270 million, as PBN previously reported. DFS Group last year extended its lease at Waikiki Galleria Tower for another 18 years and recently reopened.
“What’s exciting about DFS is that they have a very strong growth mindset for their business,” Kobayashi said. “And although the Japanese [visitors] haven’t fully returned to Hawaii, they’re the kind of company and organization that’s really looking to do new and innovative things from a perspective of … leisure and travel retail. We don’t have any concrete plans yet, but we are talking with DFS about a number of ways to do additional development and future phases at the DFS property. I’m really excited about that because I’m always looking for and we’re always looking for ways to invest in construction.”B.J. Kobayashi is seen here at Kaimana Beach Hotel in 2021.
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While there’s a lot going for Waikiki – a great location that’s popular, beautiful and has great beaches, Kobayashi said – he noted, too, the need for newer construction – newer buildings, hotel rooms, retail, and venues for food and beverage offerings.
“We [BlackSand and Kobayashi Group] have a big appetite in the next five to 10 years, investing in renewing Waikiki,” he said. “It’s probably one of my two or three main initiatives for the balance of my career.”
The real estate private equity firm also has other holdings in the neighborhood, including Kaimana Beach Hotel and is a minority partner in the Twin Fin, formerly the Aston Waikiki Beach Hotel.
And earlier this year, BlackSand purchased the former Kyo-Ya restaurant property on Kalakaua Avenue for around $22 million. There are no current plans in place for the property, but Kobayashi said, “it’s zoned to really do a lot of different things. So we could do entertainment with it, we could do residential with it, we could do hotel with it.”
“That’s our fourth investment on Kalakaua Avenue,” he said. “So we’re pretty invested. We [BlackSand, Kobayashi Group and their partners] have … $850 million worth of asset value on Kalakaua Avenue.”
One of the main routes through Waikiki, Kalakaua Avenue is “really, really vital to not just our business, but also, we feel, to our community and the economy here because it’s a very, very strong thoroughfare. … I just look at the amount of investment going into Kalakaua Avenue and we’re excited about it. We think there’s a big future for Waikiki and Kalakaua’s obviously is the main thoroughfare. … I think Kuhio [Avenue] is also going to thrive in the future.”
Although it’s impossible to predict what the future may bring, Kobayashi said he has a “very clear vision” for what he’d like to see in Waikiki in 10 years.
“I don’t have a five-year vision, but in 10 years, I am highly confident that Waikiki will have at least two five-star new hotel resorts and residences,” he said. “That’s very exciting to me in that I believe that Waikiki has got incredible hotels, but what we would like to see is to see some of those great five-star resort hotels that we have on the Neighbor Islands – on Maui, the Big Island – we’d like to see one or two more of those new construction on Oahu, and preferably in Waikiki. One of my goals is to get at least one of those two done, and I am really confident that at least two get done in the next 10 years, perhaps five years.”
Kobayashi also mentioned the impact of fewer visitors from Asian markets.
“The lower arrival rate essentially means less capital, less dollars flowing through our economy and specifically less dollars flowing through our hospitality industry,” he said. “What that does is it has to refocus us as investors and hotel owners, property owners in Waikiki to get more creative about how we create a healthier business. So we shift more and focus in on our west-bound visitors. We create more value, we try and rebrand our properties to a different makeup, or percentage, of arrivals, more from the States. I think that the hotel industry has done a good job of that in Waikiki.
“Then again, of course, [needing to be] nimble enough to change again when the Japanese begin to come back,” he said.
A view of pedestrians in Waikiki on July 12
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Bridging the gap
The City and County of Honolulu was recently awarded $25 million from the U.S. Department of Transportation’s Rebuilding American Infrastructure with Sustainability and Equity, or RAISE, discretionary grant program for the construction of the proposed Ala Pono Bridge, a new pedestrian and bicycle bridge that will cross the Ala Wai Canal. According to the project website, the proposed bridge will span the Ala Wai Canal, in approximate alignment with Kalaimoku Street on the makai side and University Avenue on the mauka side, and will connect through the Ala Wai Neighborhood Park. A spokesperson for the Honolulu Department of Transportation Services told PBN that design-build engineering is expected to begin by July 2024, following a completed environmental assessment.
Among construction underway in Waikiki is the King Kalakaua Plaza development at 2080 Kalakaua Ave., between Olohana and Kalaimoku streets. According to information provided by contractor Nordic PCL Construction, the project consists of modifications to the existing four-story retail property – formerly anchored by Niketown, as previously reported by PBN – into a seven-story, 110-unit vacation ownership resort with ground-floor storefront businesses. According to the contractor, work began in October 2022 with an estimated completion date of July 2024. G70 is the lead architect and the project’s total permit value is $78 million.
A closer look
More than three years after the onset of Covid-19, office vacancies have increased in Waikiki:
- Waikiki’s office market had a vacancy rate of 7.3% in Q4 2019 and experienced a negative net absorption of 17,162 square feet by year’s end.
- The office vacancy rate was 16.3% in Q2 2023, down from the previous vacancy rate of 18.68%.
- The Waikiki submarket lost 23,554 square feet of occupancy in Q2 and has a negative net absorption of 16,175 square feet, year-to-date.
- In the last quarter of 2019, there was 711,875 square feet of inventory in Waikiki compared to 669,915 square feet of inventory in Q2 2023.
More than three years after the onset of the Covid-19 pandemic, retail vacancies have increased in Waikiki:
- Waikiki’s retail market had a 7.53% vacancy rate in the fourth quarter of 2019, and saw an occupancy gain of 23,927 square feet by the end of that year.
- The submarket’s retail vacancy rate was 12.75% in the second quarter of 2023, which was lower than the previous vacancy rate of 13.47%.
- Waikiki saw a positive net absorption of 11,253 square feet in Q2 of 2023, but occupancy gains totaled 5,659 square feet year-to-date.
- In the last quarter of 2019, there was 1.62 million square feet of total inventory compared to 1.55 million square feet of inventory in the second quarter this year.
Source: Colliers International Hawaii