A Hazy Forecast

Maui’s economy survived Sept. 11, but its future rides on one thing: the debate over growth and development.

June, 2002

No one questions that Maui will fully recuperate from the economic ordeal of Sept. 11, but analysts stop short of giving the county a healthy prognosis. Instead, they prescribe a reassessment of Maui’s “smart growth” agenda — particularly in the areas of hotels and infrastructure — which they predict will lead to an economic slowdown in the next few years.

In the months following the attacks, Maui County managed to rein in escalating unemployment rates, attract more U.S. West visitors to help compensate for plummeting U.S. East and international numbers and maintain a strong, though not quite as robust, real estate industry.

Before Sept. 11, a weakening U.S. mainland economy had already precipitated a decline in Maui visitor numbers last year, which seemed more pronounced when compared with the county’s banner year in 2000.

“After 9-11, people lost their jobs, lost their cars, there weren’t as many tourists on the road,” says Paul Brewbaker, vice president and chief economist for Bank of Hawaii. “Perversely, 9-11 masked the fact that the infrastructure crunch was already there.”

By March, visitor arrivals to Maui were still down about 5 percent, but hotel occupancy rates for the first quarter remained the highest throughout the state at nearly 77 percent, according to consulting firm PKF-Hawaii. The county’s unemployment rate peaked at 6.4 percent in October but, for the most part, steadily declined in ensuing months to 4.6 percent in March, compared with 3.9 percent the year before, according to the Department of Labor and Industrial Relations. Brewbaker predicts job counts will reach pre-Sept. 11 levels by August.

Two key characteristics of Maui’s visitor industry helped curtail the impact of the drop in arrivals: its steady stream of returning U.S. mainland travelers — unlike Oahu’s dependence on Japan — and its large-scale sports events scheduled during seasonal valleys. The state’s economic crisis also strengthened the industry’s more than decade-old argument for a Kahului Airport runway extension.

In the months after the attack, the Maui Visitors Bureau shifted its marketing focus to the U.S. West, Executive Director Marsha Wienert says. In March, the number of U.S. West visitors were up more than 5 percent from the previous year, while the number of Japanese visitors decreased more than 26 percent, according to the state Department of Business, Economic Development and Tourism.

“We should all learn lessons when we’re dependent on one geographic area, and when uncontrollable events happen, it’s harder for you to recuperate,” she says. “We had probably half the amounts of Japanese travelers to Maui today than we had six years ago, but we’ve been doing quite well.”

Another big draw for visitors is the island’s sports events, including the Mercedes Championships and Senior Skins Game in January and the Hula Bowl in February. The Maui Invitational Basketball Tournament, held the week before Thanksgiving, still managed to lure about 5,000 people to the island. Confronted with increases in airport security measures, the industry continues to press the state for a 2,600-foot extension of Kahului Airport’s existing 7,000-foot runway. Proponents contend that the extension is essential in providing nonstop international flights and adding more direct domestic flights.

The state has asserted that Honolulu International Airport must remain the “hub and spokes” of Hawaii air travel, meaning most travelers should arrive in Honolulu and take an interisland flight to Maui.

“The more we have to deal with the terrorism issue, the more people are going to want to fly direct because they don’t want to go through three or four airports,” says Terryl Vencl, executive director of the Maui Hotel Association.

Neverthless, arrivals are rebounding, and analysts maintain that Maui lacks the infrastructure and number of hotel rooms to accommodate major increases. Earlier this year, the County Council delayed voting on approval for two luxury resort developments, the Makena Resort Corp. project and the Wailea 670 luxury expansion.

Vencl points out that the number of hotel rooms actually decreased last year, with several resorts converting rooms into time-shares. Maui experienced a 33.7 percent jump in time-shares from the previous year, according to DBEDT.

“By this time next year, the story will be occupancy is at 85 percent, there’s a labor shortage and traffic is terrible,” Brewbaker says. “The only thing that happens at this point is if you don’t increase property, room prices go up.”

Visitor number decreases and tightening budgets among residents in the fourth quarter of last year emptied out many Maui shopping centers, especially in resort areas. This year, however, managers report a steady recovery in customer traffic and sales.

The number of Maui’s retail jobs dipped slightly in the fourth quarter, DBEDT says, but a year-end report shows an increase of 5.3 percent from 2000 to 15,950 in 2001.

At Queen Kaahumanu Shopping Center, the largest mall on Maui, General Manager Scott Crockford says sales had already begun to decline after a strong first quarter last year.

Maui Land & Pineapple Co. Inc., which owns the center, reports that its equity in the mall’s losses was $1.5 million in 2001, up from $971,000 in 2000, attributed mainly to store closures and rent concessions.

“Sales are still soft, but they’re treading back in a positive direction,” Crockford says.

The drop in visitors took its toll on resort retail, as well, but The Shops at Wailea — a high-end shopping center in South Maui that opened in December 2000 with 15 tenants — was at 95 percent occupancy with 64 in April. Despite the optimistic outlook for larger shopping centers, Maui Chamber of Commerce President Lynne Woods continues to worry about smaller retailers who were already struggling before Sept. 11. Retail space had increased about 344,000 square feet, or about 10 percent, last year, forcing businesses to contend with additional big boxers Wal-Mart and Home Depot.

“I lost 90-member businesses in the two-and-a-half-week period after Sept. 11,” Woods says. “There are some people in the business community that are not well-financed, and it’s a crisis for them.”

Real Estate
Maui’s booming real estate market had already showed signs of slowing down before Sept. 11, but that hasn’t curbed the interest of agents to the island, says Laurie Lowson, chairwoman of the Maui Board of Realtors.

Single-family sales values decreased 9 percent to $402 million last year, although the number of sales, 986 units, was almost the same as in 2000, according to a year-end report by the board.

Condominiums fared better, with the total value of sales down 2 percent to $391 million. The number of sales had decreased 12 percent to 1,309, meaning average prices had increased by 12 percent to $298,996.

After an incredible run-up over the past six years, sales in the resort residential market—single-family homes, condos and lot closings within the areas of Wailea, Kapalua and Kaanapali — have begun to taper off, says Ricky Cassiday, research director at Prudential Locations.

“Sales fell a little, just a tad, but it took a breath, and that surprised me,” Cassiday says. “But developers are having no problem although the uptrend has weakened.” That hasn’t discouraged real estate agents from flocking to Maui, either, Lowson says.

“Membership is up to about 1,100, up about 40 people from last year,” she says. “It seems like people are feeling safer, feeling Hawaii is a safe place to go but still part of the U.S.”

After two outstanding years for Maui’s construction industry, the value of private building permits decreased 12 percent to $312,738 last year, DBEDT says.

New single-family homes continue to sprout up in central and south Maui, but construction companies grow increasingly concerned about county restraints on resort development.

“I think it’s important that we recognize that we are a world-class resort destination, and that’s our economy,” says Steve Goodfellow, president of Maui-based Goodfellow Brothers Inc. “If we build nothing but residential — really, it’s almost killing the goose that lays the golden eggs.”

In addition, the mayor’s proposed capital improvement projects budget for the 2002-2003 fiscal year would spend $13 million less than the current $64 million CIP budget.

“Maui’s construction industry is strong,” Mayor James “Kimo” Apana says. “Several projects are on the planning boards, including a $75 million to $150 million wastewater treatment plant. When construction is going strong, the county doesn’t have to release as much money.”

The mayor’s assessment is partially true, says Goodfellow, whose company relies on Maui for about half of its construction projects in the state. “Maui’s construction industry has done better in the past two years than in the previous three to five years,” Goodfellow says. “But what we’re doing is looking in the rearview mirror. We need to look ahead to what’s coming up, and I see a slowdown and tough times ahead.”

With C. Brewer & Co.’s 20,800 acres in Wailuku put up for sale in April — as part of a business liquidation — coupled with the 1999 closing of Amfac’s Pioneer Mill in Lahaina — the outlook for Maui agriculture appears grim. But Maui Pineapple Co. and Hawaii Commercial & Sugar Co. know survival is all about adaptability.

The pair of agricultural giants has managed to adjust business strategies as needed, with both eager to ensure their current leases on C. Brewer land continue with new ownership.

Doug Schenk, executive vice president at Maui Pine, says Sept. 11 resulted in a “dramatic drop-off in food service because people stopped eating at restaurants for a while, which hurt us a lot. There was a drop-off in the canned business because people weren’t buying as much, and I can’t explain why.”

Nevertheless, pineapple revenues for 2001 were more than $97 million, up 13 percent from the previous year, which Schenk attributes to the company’s shift in emphasis from canned pineapple to fresh fruit. This year, about 40 percent of Maui Pine’s revenues will come from non-canned and fresh-fruit products compared with 15 percent just a few years ago.

Production at HC&S, which manufactures 80 percent of the state’s raw sugar, decreased from 210,269 tons in 2000 to 191,512 tons last year. The drop is attributed to the reduction in harvested acres as well as extended drought conditions.

Last year, the company was afforded a respite from years of declining U.S. sugar prices, due to lessened overproduction and increased restrictions on imported sugars. That break could be brief, though, as domestic prices began to decline in the first quarter of this year.

“Right now, we’re sitting on our hands, literally,” plantation General Manager Stephen Holaday says. “We’ve priced 43 percent of this year’s sugar before prices started falling again.” HC&S plans to double its production of food-grade specialty sugars this year which, pound for pound, is significantly more profitable than its other segments, Holaday says.

High tech
Despite financial woes in California, Maui’s high-technology industry, which employs about 800 islanders, appears to have escaped unscathed from the economic crisis of Sept. 11. The Maui Research and Technology Center, which houses tech startups for up to three years, reports 100 percent occupancy. Most startups eventually transition into the surrounding 330-acre Kihei park, which, within the next 18 months, will contain a new building to house five more businesses, says Jeanne Skog, president of the Maui Economic Development Board.

The park has received more than 30 serious inquiries from potential startups in the past year alone. Skog points out the average salary for tech workers is about $20,000 higher than wages in other sectors.

“Part of it is because the county and community are realizing it’s clean, so it doesn’t have the potential impact to the environment that other sectors are producing,” Skog says. “It’s providing lucrative wage levels, and it is, in fact, doing what we’d hope: attracting back youths that might have otherwise stayed on the mainland.”

The industry brings in $90 million annually to the county’s economy, managing to appease both sides in the ongoing debate over Maui’s development. Yet steady increases in visitor arrivals as well as the island’s population growth ensure the dispute is far from over, First Hawaiian Bank economist Leroy Laney says.

“You’re looking at a situation where you’re going to have this constraint on growth that’s been a significant contributor to Maui’s economy over the last few years,” he says. “In order to create jobs, increase per capita income and the tax base and have better schools and roads, you have to have economic growth of some kind. This debate has come up several times in the last decade, but it’s come to a head in the last year or two and is likely to go on for a long, long time.”

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