Vacated Ala Moana & Waikele Anchor Retail Spaces Trigger Landlord Restructuring and Investor Caution
The planned closure of Saks Off Fifth stores at Oahu's Ala Moana Center and Waikele Premium Outlets, driven by the retailer's bankruptcy proceedings, highlights a persistent challenge for Hawaii's commercial real estate market: the declining demand for large-format anchor retail spaces. This trend intensifies the need for property owners to devise innovative leasing strategies and for investors to reassess the stability of traditional retail-dependent portfolios.
The Change
Saks Off Fifth has announced the closure of its Ala Moana and Waikele locations following its parent company's bankruptcy filing. While specific closing dates are pending, the shuttering of these significant retail spaces, particularly at prime locations like Ala Moana Center, signals a contraction in the department store and off-price retail sectors. This event is not isolated but reflects a broader national trend of retailers rightsizing their physical footprints or exiting the market, leaving landlords with substantial vacancies. The impact is immediate as leases terminate and the hunt for new, diverse tenants begins.
Who's Affected
- Real Estate Owners: Landlords of Ala Moana Center, Waikele Premium Outlets, and other properties with similar large retail footprints face the immediate challenge of finding replacement tenants. This could lead to extended vacancy periods, a potential need to offer concessions, or a re-evaluation of how these large spaces are subdivided and utilized. The economics of managing large, underutilized spaces will strain operating budgets.
- Investors: Investors with significant exposure to Hawaii's traditional retail real estate sector need to monitor vacancy rates and the success of landlords in adapting their strategies. The closure of anchor tenants can negatively impact the perceived value and income generation potential of entire shopping centers, potentially affecting property valuations and future investment decisions.
- Small Business Operators: While the direct impact on small businesses within these specific centers may vary, the trend could present opportunities. Landlords seeking to fill large spaces might explore creating smaller, more diverse retail or service "pods." This could open doors for local entrepreneurs seeking prime locations, potentially at more flexible lease terms or incorporating hybrid retail-experiential models. Conversely, a decrease in overall foot traffic from a major anchor could negatively affect surrounding small businesses.
- Tourism Operators: The appeal of large-scale shopping destinations as a draw for tourists might diminish if anchor tenants continue to disappear. While Hawaii's tourism remains robust, a shift away from traditional retail experiences could necessitate adjustments in how shopping is marketed as an attraction, and potentially impact shuttle services or tour packages focused on these destinations.
Second-Order Effects
The departure of major anchor retailers can trigger a cascade of effects in Hawaii's unique, island-based economy. The most significant ripple is the strain on landlords to re-tenant large spaces. This pressure may lead to property owners seeking mixed-use redevelopment, potentially converting retail floors to residential or office use—a process requiring extensive permitting and potentially increasing property taxes. Furthermore, as consumer spending habits shift away from traditional brick-and-mortar department stores towards e-commerce or experiential retail, the overall demand for large physical retail footprints decreases. This could lower lease rates for remaining large spaces, impacting the overall profitability of retail-focused real estate investment trusts (REITs) and local property owners. A sustained trend of retail vacancies could also depress local commercial property values, affecting the tax base and potentially influencing county revenue streams used for public services.
What to Do
Action Level: Watch
Given the ongoing shifts in retail and tenant demand, a proactive monitoring approach is recommended. Landlords and investors should closely observe market responses to these closures.
- For Real Estate Owners: Monitor vacancy rates across major commercial centers. Watch for landlord initiatives (e.g., creative subdivision, repurposing spaces for non-retail uses like entertainment, dining, or even co-working spaces) and track the success of these re-tenanting efforts. Pay attention to potential shifts in leasing terms and concessions being offered for comparable large-format spaces.
- For Investors: Track the performance of publicly traded retail REITs with significant Hawaii exposure. Monitor the reported occupancy rates and rental income of major shopping centers. Analyze new development pipelines to see if they are de-emphasizing traditional retail anchors in favor of other asset classes.
- For Small Business Operators: Keep an eye on emerging leasing opportunities within affected centers. If landlords offer new configurations or flexible terms to fill vacancies, this could present a chance for expansion. Also, monitor foot traffic and consumer behavior shifts in surrounding retail areas to adapt your own business strategy.
- For Tourism Operators: Assess how the changing retail landscape might affect visitor itineraries and spending patterns. Be prepared to adjust marketing and promotional efforts if shopping loses some of its traditional allure as a tourist activity.
Action Details: Watch commercial real estate vacancy reports and news on landlord creative re-tenanting strategies for large retail spaces in Hawaii. If vacancy rates for Class A retail properties exceed 15% for more than two consecutive quarters, or if a significant number of landlords begin offering substantial lease concessions (over 20% of base rent for the first year), then consider reassessing market exposure and leasing strategies for your business or portfolio.
