Big Island boom envisioned

By Kevin Dayton
Advertiser Big Island Bureau

HILO, Hawai'i — The Big Island's economy will continue to boom next year, thanks to construction activity, a hot real-estate market and rebounding tourist arrivals from Japan, according to an annual survey by First Hawaiian Bank economics consultant Leroy Laney.

Laney made his remarks to members of the Hawai'i Island Chamber of Commerce at the Hawai'i Naniloa Resort during the 30th Annual Hawai'i County Business Outlook Forum of First Hawaiian Bank.

Overall, Laney said, this is the best statewide economic outlook he has seen in 15 years of forecasting for First Hawaiian.

He said there are some potential problems on the horizon, but expects the Big Island's momentum to carry forward, helped along by tens of millions dollars in private and federal construction projects in the pipeline.

Those include the $28 million Mauna Kea Astronomy Education Center now under construction; the early phases of the $60 million Pacific Basin Agricultural Research Center and $220 million in planned Saddle Road improvements; and plans for almost $300 million in military construction on the Big Island to accommodate Stryker vehicles at the Pohakuloa Training Area.

Much of the current growth is being driven by a strong construction industry, which continues to be fueled by low interest rates as well as the surge in federal spending, Laney said.

"I see nothing on the horizon that would indicate that (2005) shouldn't be a very good year," he said. "That's not to say that the Big Island is bulletproof. You could have a big enough blow to tourism here that the Big Island would feel it, but the fact that the Big Island is more diversified means it is more insulated than a Maui or a Kaua'i would be to a tourism shock."

Tourism has also been strong, with total air seats arriving in Kona up almost 33 percent so far this year over last year, Laney said. Additional cruise-ship passengers are also expected, with two more cruise ships expected to enter the market next year and in 2006.

Laney said the rapid growth the state is enjoying now has already led many economic indicators beyond the heights of the boom of the late 1980s, which Laney said was largely speculative and collapsed after the outbreak of the first Gulf War in 1990.

That surge in growth in the late 1980s "was based on a less solid foundation than what we're seeing now, because a lot of it was driven by speculative money coming out of Japan," Laney said.

Laney said there is "some element of speculation" emerging in today's real-estate market, but "nothing like what we saw then."

Average Big Island home prices sold thus far this year were up 52 percent in Hilo, 102 percent in Waimea, 42 percent in Kona, and 74 percent in Keauhou as compared to sales in 2000, Laney said. But Laney said he expects to see real-estate prices begin to level off.

"If the market maintains a degree of rationality, I don't think you will see that speculative element come into it — that will level off," Laney said.

The Big Island was better able to weather the economic jolts from 9/11 and the invasion of Iraq because its economy is more diversified than Kaua'i and Maui. The sudden drops in tourist arrivals hurt, but the Big Island has other industries such as diversified agriculture, astronomy and a growing University of Hawai'i-Hilo to cushion the shocks.

Laney made several cautionary comments, however.

"We're getting an increasingly tight labor market, and that's one of the biggest constraints on business expansion," particularly in Kona, Laney said.

Another concern is the ongoing struggle over the $50 million Outrigger Telescopes Project proposed by NASA for Mauna Kea, Laney said. Critics oppose additional building for new astronomy facilities if it means further disturbing a mountain considered sacred by Native Hawaiians.

Laney said if the state Board of Land and Natural Resources refuses to issue a conservation district use permit the project needs to proceed, that could scare off other projects and lead to a decline in astronomy as an industry on the Big Island.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com or (808) 935-3916.