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VIEWPOINT: Why Are Maui’s Malls Vacant?

Previously Sports Authority and before that, Borders Books and Music, Kahului

Today nearly 12 percent of Maui’s retail space is empty, and that figure is expected to rise to 16 percent by the beginning of next year. That would amount to an increase of 100 percent since 2013, when retail vacancy was at 8 percent.

It may not be apparent walking through Queen Ka‘ahumanu Center, but take a stroll through Lahaina Gateway strip mall and half the shops are empty. Other malls like the Maui Mall, Maui Marketplace, Kahana Gateway Center, and Ma’alaea Harbor Shops seem to be more empty than full, with some districts breaking 30 percent retail vacancy.

Why are Maui’s malls hollowing out?

Nationally, e-commerce has been a major factor in the decline of brick-and-mortar retailers. Sixty-eight (68) percent of Americans shop online monthly, and digital transactions accounted for almost 20 percent of national holiday sales last year.

So it may seem that the internet has killed the mall rat. But the numbers tell a different story.

Surprisingly, retail employment on Maui has been increasing since 2011 and is nearing the all-time high set in 2007. Additionally, retail earnings have increased 22 percent since 2010. This is likely related to the increased volume of tourism on Maui, which has brought with it increased visitor spending.

Instead of destroying Maui’s retail industry, e-commerce is forcing a change. Fifteen years ago people bought their couches at HomeWorld, their books at Borders and their clothes at Macy’s. Today, all of that and more can be found on Amazon and other online outlets at equal or lower prices than standard brick-and-mortar stores.

But experiences such as eating out with your family, exercising at the gym, and a night out at the movies can’t be ordered on Amazon. In fact, Americans now spend more money eating out than eating at home. When people save money buying inexpensive goods online, they have more to spend on poke bowls or breakfast at Koho’s.

As the retail industry changes, real estate space that used to be prime no longer meets the needs of today’s entrepreneurs. Shared work spaces are the new office buildings. Warehouses and grocery stores now are one and the same. And old retail spaces empty out as stores like Lowe’s move to more appealing locations.

But why does real estate space sit vacant for so long? Shouldn’t commercial real estate owners just lower their rents?

Presumably, it’s because the value of commercial real estate is tied directly to how much people are willing to pay. In other words, if you have a diamond ring and say it’s worth $50,000, but not a single person is willing to pay that price, then it isn’t worth $50,000. If you have to offer a discount of $25,000 to sell the ring, future buyers will look to that price as the standard.

Previously a Bank of Hawaii branch at the Maui Marketplace, Kahului

In the case of commercial real estate, current tenants may demand the discounted lease price being offered to new tenants, leading to a bigger loss in the long run than simply leaving the storefronts vacant in the (relatively) short run.

Additionally, not everyone in commercial real estate believes brick-and-mortar retail is collapsing. Bruce Flatt, chief executive officer of the asset management firm Brookfield Property Partners, believes retail is the No. 1 investment, and his company continues to acquire retail real estate.

Perhaps owners of Maui’s vacant retail spaces are holding out for a turnaround of brick and mortars in the next couple decades. This could explain why retail space continues to be built.

Regardless, vacancies are on the rise, and mall owners may need to find new uses for their properties. Given Maui’s housing shortage, could empty retail space be transitioned into housing? It’s possible, but first would require zoning changes by Maui’s Land Use committee.

The Land Use committee is considering rezoning unused agricultural land to create more housing. Making a zoning change from commercial to residential might be an easier feat as the land has already been developed, so the environmental impact would be minimal. And it’s not unheard of to do so: Brookfield Property Partners has converted some of its commercial properties to multi-family apartments. However, commercial property is generally much more expensive than residential, and mall owners may be reluctant to make the transition.

Many things could change, but it’s clearly not the end of brick-and-mortar retail. As Amazon experiments with such stores, a new retail model may emerge, and Maui could see a decrease in its brick-and-mortar vacancies.

Or perhaps the pressure of e-commerce will force more stores to close.

In either case, as e-commerce continues to remodel how goods are delivered at the retail level, generally putting downward pressure on prices, Maui consumers will win in the end.

Aaron Lief

Aaron Lief is a researcher at the Grassroot Institute of Hawaii, an independent non-profit research organization.

The MAUIWatch Community Network invites readers to express their views in the Community Viewpoint. Community Viewpoint columns should be on or around 800 words. Community Viewpoint submissions are subject to editing. We do not print letters announcing events to come, extensive quotations from other material, open letters or form letters. Send to contact (at) mauiwatch (dot) com

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