Insights for Hospitality Investors
Q2 2025 - Hawaii Retail Resiliency & CRE Investment Recovery
Executive Summary
Hawai‘i’s retail and commercial real estate markets have crossed an important milestone. As of Q2 2025, O‘ahu’s retail vacancy has returned to pre‑pandemic levels, while commercial investment activity has recorded its first year‑over‑year gains in both sales volume and transaction counts since 2019. This rebound underscores the resilience of Hawai‘i’s economy, supported by strong job growth, renewed consumer confidence, and a tourism sector that continues to anchor local spending.
At the same time, the market faces new challenges. Rents and occupancy costs are climbing, operating expenses are rising, and trade policy uncertainty looms. These forces are reshaping the competitive landscape and pressuring tenants to adapt. For investors, the lesson is clear: the market is stabilizing, but disciplined strategy and local expertise will separate winners from laggards.
RETAIL MARKET PERFORMANCE
Vacancy has fallen to 5.33 %, marking four consecutive quarters of positive absorption.
Retail sales, after contracting sharply in 2024, rebounded in early 2025 to record levels.
Employment added 12,400 jobs year‑over‑year, with the retail sector leading at
+3,400 positions.
Tourism welcomed 1.9 million arrivals through April 2025, with visitor expenditures up 13 percent compared to the prior year.
Despite these gains, tenants face intensifying cost pressures. Average asking base rents have risen to $4.79 per square foot per month, a 10.9 percent increase since 2023, while triple‑net operating expenses continue to climb.
Although Hawaii’s retail fundamentals remain strong, with healthy consumer spending and steady tenant performance, new market entries continue to be limited. Most national and regional retailers are maintaining a cautious approach, focusing on optimizing existing stores rather than expanding into new locations. This has been especially evident in the mid-box segment.
CRE INVESTMENT MARKET RECOVERY
The investment market has finally turned a corner. In the first half of 2025, Hawai‘i recorded:
+44%
$876 million in sales volume,
a 44 percent increase year‑over‑year.
+40%
137 transactions, up nearly 40 percent compared to 2024.
Local investors were the primary drivers, accounting for nearly three‑quarters of transactions and more than half of dollar volume. Mainland and foreign buyers remain cautious, constrained by exchange rates and financing headwinds, but are expected to re‑emerge as pricing stabilizes.
Notable transactions included:
• $216 million acquisition of resort land in Ko Olina by Newage Ko Olina I LLC.
• $42 million sale of the Star‑Advertiser industrial facility in Kapolei.
• Multiple stabilized retail center trades in the $20 million range.
STARTEGIC IMPLICATIONS
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Retail repositioning will be essential for underperforming centers.
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Industrial remain the most attractive institutional asset classes.
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Hospitality continues to provide stability, with Waikiki outperforming, while outer‑island assets remain selective but opportunistic plays.F
FONG KAZAMA'S VIEW
Q2 2025 marks a genuine inflection point for Hawai‘i’s retail and investment markets. Investors who act now — while institutional capital is still cautious — can capture favorable entry positions. With more than 40 years of combined cross‑market experience, Fong Kazama Institutional Properties provides the local expertise and institutional strategy necessary to identify resilient subsectors and execute with confidence.
About Fong Kazama Institutional Properties
Fong Kazama Institutional Properties is a cross‑market hotel, investment, and retail brokerage with an emphasis in Hawai‘i, Southern California, and Asia. With more than 40 years of combined experience, we specialize in:• Institutional Retail Landlord Lease Brokerage – portfolios, shopping centers, new developments, pad sites, and tenant retention programs that drive high occupancy.• Institutional Retail Tenant Lease Brokerage – new market entries, multi‑store rollouts, anchor renewals, and ground leases, with a proven track record of securing prime locations for national and global retailers.• Institutional Hotel & Investment Sale Brokerage – portfolio, hotel, shopping center, multifamily, and land sales, including many of Hawai‘i’s most significant recent transactions.Further information on our current projects: www.fongkazama.com
Visitor Demographics and Market Trends
Visitor demographics remain pivotal to Hawaii’s hospitality market. Domestic tourism remains robust, and the slow recovery of international visitors, particularly from Japan, continues to impact overall spending. However, arrivals from Australia, South Korea, Canada and New Zealand are steadily increasing, diversifying the visitor base. Investors should focus on properties and strategies that cater to a mix of international and domestic visitors for long-term profitability.