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How Hawaii's Real Estate Has Weathered the Storm

Natural Disasters Have Some Investors, Visitors Nervous About the Islands
September 11, 2018
This retail property for sale in Hilo on Hawaii's Big Island has seen reduced interest from potential buyers after a volcano eruption and hurricane hit the island earlier this year.


High-profile natural disasters such as excessive rains pounding the beachfronts and the explosive eruptions from the Kilauea volcano have taken some of the shine off of Hawaii's commercial real estate industry.

The disasters have caused a decline in tourism that has hurt the hospitality industry and ignited a new reluctance by investors who had been previously more eager to scoop up Hawaiian properties, according to analysts and professionals familiar with the area.

Sandeep Pathak, managing director at real estate capital advisory firm Ackman Ziff’s downtown Los Angeles office, said that investors he knows were already leery of developing in Hawaii because high costs and its tourism-dependent economy, in general.

"The bar is a lot higher for any Hawaiian investment opportunity right now, and the natural disaster probably contributes to that," Pathak said.

Investors have long been attracted to Hawaii, largely because of the islands' strong tourist draw. But the disasters may be putting a damper on the number of people eager to take a holiday there now.

The Kilauea volcano erupted in May of this year, and for three months historic amounts of lava have splattered and flowed through beach communities, leaving destruction and thick coats of volcanic ash in its wake. Last month, the islands were hit by Hurricane Lane, which dumped more than 40 inches of rain and led to widespread flooding that closed roads and forced evacuations on the Big Island.

At the Dolphin Bay Hotel on the Hilo side of the Big Island, manager and owner John Alexander said he has seen a "considerable drop" in occupancy since around the beginning of July, about two months after the volcano began erupting.

He said he has not seen anything like it in his small hotel’s 50-year existence and attributes the decline to the temporary closing of the nearby Hawaii Volcanoes National Park.

Tourism statistics show he's not the only one suffering.

"Our statistics are showing a significant drop in the visitors staying on the Hilo side of the island by almost 30 percent over the last few months since the eruption," Ross Birch, executive director of the Island of Hawaii Visitors Bureau, said.

The number of visitors to the Big Island in total dropped nearly 13 percent in July, according to the Hawaii Tourism Authority.

Jamie Brown, founder and president of Hawaii Commercial Real Estate LLC, said the drop in visitors across all of the Hilo side of the Big Island is affecting retailers and their landlords that relied on the tourism too, he said.

"You’ve got some retail centers that their tenants are struggling because there’s less business going on," Brown said.

These events and their damage to the tourism industry combined could be having a chilling effect on investors from outside the market, too.

Brown’s commercial real estate company is now trying to sell a retail property that fronts Hilo Bay at 144 Kamehameha Ave., but has seen reduced interest in the property recently.

"We’ve been a little bit negatively affected by the volcano because people who don’t know the market are afraid of the market because they think a volcano is wiping out the area, and it’s really not," Brown explained. "We’ve still got interest in it but less interest than we would think because people who might think of coming into the market are probably nervous."



Karen Jordan, Los Angeles Market Reporter  CoStar Group   
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