Retail Vacancy Risk Rises for Oahu Centers as Saks Off 5th Exits

The strategic decision by Saks Global to close the majority of its Saks Off 5th and Last Call stores nationwide, including locations at Waikele Center and Ala Moana Center, introduces new uncertainties for Hawaii's commercial real estate landscape. This move amplifies existing concerns about the viability of large brick-and-mortar retail anchors and necessitates a proactive approach from property owners and strategic adjustments from other businesses reliant on retail foot traffic.

The Change

Saks Off 5th is scheduled to cease operations at its Waikele Center and Ala Moana Center locations. This is part of a broader corporate strategy to wind down a significant portion of its off-price retail footprint across the United States. While no specific closure date beyond the current fiscal year has been provided by Saks Global, the announcement signals a definitive shift away from these physical retail concepts.

Who's Affected

• Real Estate Owners/Landlords (Ala Moana Center, Waikele Center): The departure of a major anchor tenant like Saks Off 5th creates a significant void. Property owners will face the challenge of replacing a large retail footprint, which can be a lengthy and costly process. This could lead to downward pressure on rental rates for comparable spaces and potentially longer vacancy periods, impacting overall property valuations and revenue streams. The ability to attract a new anchor that can maintain similar or higher foot traffic will be critical.
• Investors (Commercial Real Estate, Retail Funds): This closure may serve as an indicator of broader trends impacting the off-price retail sector and, by extension, the performance of commercial real estate assets heavily reliant on traditional retail. Investors in Hawaii-focused real estate funds or portfolios with significant exposure to shopping mall anchors should reassess the resilience of their holdings against evolving consumer spending habits and the rise of e-commerce.
• Small Business Operators (Surrounding Ala Moana, Waikele): Businesses located in proximity to these Saks Off 5th stores rely on the associated foot traffic. The closure could lead to a reduction in casual shoppers, impacting sales for smaller retailers, restaurants, and service providers within and adjacent to the centers. Strategic adjustments to marketing and customer engagement may be necessary to mitigate potential declines in walk-in traffic.
• Tourism Operators (Hotels, Tour Companies): While not directly impacted, changes to major shopping destinations can influence visitor itineraries. The closure of a prominent retail name might subtly alter the perceived appeal or convenience of these locations for tourists, potentially affecting spending patterns on shopping excursions. Operators may need to adjust recommendations or focus on alternative attractions.

Second-Order Effects

The departure of a large retail anchor can trigger a cascade of effects in Hawaii's unique, island-based economy. A prolonged vacancy at a premier location like Ala Moana Center could reduce overall mall foot traffic. This decreased traffic may lead to lower sales for smaller, complementary businesses within the center, potentially causing some to reduce operating hours or staff. Reduced economic activity in these commercial hubs could eventually impact local employment figures and lessen demand for associated services like maintenance or local logistics, creating a localized economic drag.

What to Do (WATCH)

Action Details:

This trend warrants a watch status. Landlords of large retail spaces, particularly those adjacent to or within centers with anchor tenants, should monitor national retail leasing trends and local vacancy rates. Pay close attention to any formal announcements from Ala Moana Center and Waikele Center regarding new leasing commitments for the vacated spaces. If vacancy rates for large retail spaces in similar centers begin to exceed 5% for more than six months, consider diversifying tenant mix or exploring alternative uses for underperforming commercial spaces. Investors should monitor the financial reports of publicly traded retail REITs and sector-specific ETFs for signs of broader distress or resilience.

Monitoring Indicators:

• Official vacancy rates for large-format retail spaces (>$20,000 sq ft) in Oahu shopping centers.
• Leasing activity and terms for comparable retail spaces in Hawaii.
• Performance reports from major Hawaiian commercial landlords and retail REITs.
• Consumer spending data on apparel and general merchandise sourced from official state or federal economic reports.

Trigger Conditions for Action:

• If statewide vacancy rates for large retail spaces exceed 7% for two consecutive quarters.
• If the average lease term for new retail anchor tenants on Oahu drops by more than 20% compared to the previous year.
• If major retail REITs with significant Hawaii exposure report sustained negative net asset value growth.