October 17, 2008

MAUI'S ECONOMY DETERIORATES
AFTER 11-YEAR EXPANSION

(Kahului, Hawaii, October 17, 2008) - Hampered by the slowing national economy, Maui's economy has decelerated along with the rest of the state and may see little or no growth in the near future, economist Dr. Leroy Laney said today at First Hawaiian Bank's 34th annual Maui County Economic Outlook Forums held at the Maui Beach Hotel.

After an 11-year expansion, factors contributing to the current Maui slowdown are flat job growth, higher unemployment, a weaker housing market, anemic tourism, and slower construction, said Laney, First Hawaiian Bank economic advisor and a professor of economics and finance at Hawaii Pacific University.

Laney's comments on the various sectors of the Maui economy:

Maui tourism: weak in '07, slump worsens in '08
“In 2007, both Maui visitor arrivals and total visitor spending contracted from the previous year. Even though the year was weak for the state as a whole, Maui led the decline in arrivals and was the only island to see a drop in spending during 2007. The decline has worsened more in 2008, thanks in part to Mainland U.S. economic woes and the Aloha Airlines and ATA closures.

“In addition, activity operators on Maui that had connections with the departed Norwegian Cruise Line ships have felt that loss. These include helicopters, boat tours, and some luaus.”

Maui's retailing sector reflects economic slowdown
Maui retailing has been reflecting the economic slowdown, in both local and visitor spending. The biggest mall, Queen Ka'ahumanu Center, reports sales down some in 2008, after slowing in 2007. Higher gas prices are eating into household budgets, and retailers feel the effect of higher energy prices in their costs, also. On a brighter note, tenants are able to fill job vacancies more easily with the cooling labor market,” Laney said.

Laney noted that sales at tourism-oriented retail centers are directly linked to occupancy rates in nearby visitor accommodations. “In that regard, being near to time-share units is a plus, because occupancies run higher there. On the West side, hotels have been slower, for example, but time-share is plentiful, which helps a retail center like Whalers Village. Wailea, on the other hand, does not allow time-share development,” Laney said.

Residential construction industry remains in a decline
Permits for Maui residential construction have seen a string of quarterly declines beginning in 2007, Laney noted. “Recently, there have been fewer projects approved, and they have been smaller ones. Some projects that were underway are now being shelved, or pushed back, as developers adopt a wait-and-see stance,” he said.

“The availability of water is also adds to uncertainty. Under Maui County's recent 'show me the water' ordinance, developers are required to identify sources of water for new houses before the County will grant them a meter. No water meter, no house,” Laney said. “Another drag on construction is the workforce housing ordinance passed in 2006, which raised the affordable housing requirement for new development.”

Some Maui builders are switching from residential to commercial construction, where there is pent-up demand despite the slowing economy, Laney said. However, he added, with 800,000 square feet of space brought on about a year ago, plus a mixed-use project near the Maui Lani residential development that has about 50 acres of commercial space, as well as A&B's 179-acre Business Park II in the Dairy Road area now scheduled for a late 2010 or early 2011 opening, demand for commercial space on Maui should be satiated for 10 years or more.

There aren't as many visitor-related construction projects on Maui as there were several years ago, Laney said, but the Honua Kai time-share project in West Maui is ongoing, and Kaanapali Ocean Resort Phase II is mostly finished. Another time-share project under construction is Marriott's Maui Ocean Club Napili Tower.

Alexander & Baldwin is moving forward with several projects including construction of Kahului Town Center, which will give the downtown area a needed facelift by 2010. A&B is also moving ahead with its Wailea residential projects, but it must reach agreement with the County Water Department before its Haliimaile subdivision can go forward, he said.

Maui home prices continue to drop in '08
“Maui home prices have been falling for couple of years now,” Laney said. “Lower prices initially lead to lower home demand, as buyers project further price declines and wait for the bottom. And that, in turn, leads to lower construction activity as builders try to avoid an inventory of unsold homes.”

He noted that Maui single-family home resales were down 27 percent in the first half of 2008, while condo resales were off a smaller 18 percent. Single-family prices fell 9 percent, however, and condo prices actually rose 10 percent.

“The last time Maui experienced such price declines was in the middle 1990s, a decline that was not over in just a year. Thus it may take a few years before we see Maui home prices take off again,” he said.

Agriculture: Specialty sugars; trouble for pineapple
Laney said“To diversify away from commodity sugar, Maui's remaining sugar operation, HC&S, has invested over $10 million in specialty sugar products such as its 'Sugar in the Raw' brand. Trends are also moving away from high fructose corn syrup, substituting evaporated cane juice, a natural unrefined white sugar with just a hint of molasses to enhance flavor. HC&S also aims to capitalize upon this product.”

He said about 30 percent of the 200,000 tons annually of sugar produced by HC&S now goes into specialty products. “Some day it could account for almost all of it. That 30 percent of production generates 45 percent of the sugar revenue at HC&S,” he said.

“Maui's other traditional plantation crop, pineapple, took a very hard hit with the 274 layoffs that Maui Land & Pineapple Co. announced in July 2008. Most of those layoffs came on the pineapple side, though the real estate end was also included. It isn't good news for the future of pineapple in Hawaii,” Laney said.

Higher education growing segment of Maui's economy
“Maui Community College continues to underpin a developing higher education sector on the island. MCC has an enrollment of about 3,000 students, more than 200 employees, an annual budget of almost $40 million, and $68 million in Federal and State grants,” Laney said.

He noted that the college now also offers baccalaureate and master's degrees via distance learning and conferred 97 such degrees this spring.

“One impressive recent addition is the 400-bed student housing project in Kahului,” he said.

# # #