What's in store
By Alan Yonan Jr.
Advertiser Staff Writer
Hawai'i's businesses have been through tough years before. But 2009 was no doubt the toughest most local business leaders have faced in their lifetimes.
The economy closed out the decade in a downward spiral, with dozens of businesses closing and unemployment hitting a 30-year high. Tourism suffered steep declines in arrivals and spending, while a host of commercial and residental real estate projects were shelved or canceled.
Agriculture foundered as Maui Land & Pineapple Co. shut down its pineapple operations, Gay and Robinson quit the sugar business and Alexander & Baldwin Inc.'s agribusiness unit racked up more losses.
The technology sector also hit a rough patch, with executives of Hoku Scientific losing control of the company to a Chinese concern and Hawaii Biotech being forced to file for bankruptcy.
The major economic forecasting agencies in the state seem to agree that prospects for a return to growth in 2010 are good. But following the deepest recession since the 1930s, any recovery surely will be slow.
Here is a look at what's expected on the local business scene this year.
1. HAWAI'I'S ECONOMY
Following two years of declines in almost every measure of economic performance, the state's sputtering economy is finally showing signs of life. The good news is that a recovery has to start somewhere. The bad news is it will likely take years before things like home equity, payroll jobs and visitor spending are restored to pre-2008 levels. Hawai'i is largely at the mercy of what happens on the Mainland, and research has shown that recessions associated with financial crises are typically long-lasting and followed by slow recoveries.
What's in store for 2010? Economists in state government and at the University of Hawai'i are forecasting minimal to modest improvements in most sectors of the economy this year, with sustained gains not occurring until 2011.
The old saying that whatever goes up must come down rang true for the visitor industry in the second half of the decade. The record 7.5 million visitors that came ashore in 2006 — a figure that was matched again in 2007 — boosted daily room rates to an unprecedented $185.67 in January 2008. But by then the writing was on the wall. As hotels jacked up their rates and the economy slowed, visitor arrivals began to tumble. What followed was 20 straight monthly declines in visitor spending. Only now are economists suggesting a bottom has been reached.
What's in store for 2010? After declines totaling 15 percent in 2008 and 2009, visitor arrivals are expected to eke out a 2 percent gain this year, according to the state Department of Business, Economic Development and Tourism.
3. JOB MARKET
The job losses that began with the sudden shutdown of Aloha Airlines in spring 2008 continued at a steady pace through 2009. Mass layoffs at Superferry and Maui Land & Pineapple made headlines, but scores of smaller employers also handed out pink slips, sending thousands of workers each week to the unemployment line. Weekly unemployment insurance claims cracked the 2,000 mark in late 2008 and remained above that level every week in 2009. The governor's move to accelerate public works projects has helped blunt the decline in construction jobs, and the city's planned rail project certainly will boost job growth.
What's in store for 2010? History shows that employers are reluctant to hire until they are convinced an economic recovery is firmly in place.
Last year was an ominous one for the state's agriculture sector, with its once-dominant sugar and pineapple businesses suffering yet another blow. The departure of Gay & Robinson on Kaua'i left the state with only one sugar producer, Hawaiian Commercial & Sugar Co. And questions have been raised about the viability of HC&S, which has been a money loser lately for parent, Alexander & Baldwin.
What's in store for 2010? A plan to revive pineapple production on Maui after the shutdown of Maui Pineapple Co. is welcome news. However, the crop that holds the most promise is seeed corn, which is on track to generate $250 million in spending annually.
The sector lost one of its biggest benefactors last year, a tax credit program commonly referred to as Act 221. While the loss will likely have long-term effects for tech companies looking to raise capital, other factors contributed to the troubles at Hoku Scientific and Hawaii Biotech. The former ran into funding problems with its polysilicon plant under construction in Idaho and was forced to sell a 60 percent stake to Chengdu-based Tianwei New Energy Holdings Co. Hawaii Biotech, which is undergoing clinical trials for a West Nile vaccine, managed to fend off a boardroom coup but still had to file for bankruptcy when cash ran low.
What's in store for 2010? Supporters of Act 221 say its loss will mean startups will struggle to raise funds. But even without Act 221, the burgeoning alternative energy sector is sure to continue blossoming.
Hawai'i retailers have generally fared better than their counterparts on the Mainland, where in some markets virtually entire malls have gone empty. Commercial real estate firm Colliers Monroe Friedlander said the stable vacancy rate locally is notable because close to 500,000 square feet of new retail space was added to the market last year , primarily with the opening of Kapolei Commons and Pearl City Gateway shopping centers. Among the bigger expansions were Ross Dress for Less opening a 30,078-square-foot store in Kapolei Commons and fashion retailer Forever 21 leasing the 42,580 square feet of space at Royal Hawaiian Center abandoned by Hilo Hattie.
What's in store for 2010? Whole Foods, which pulled the plug on its planned Kaka'ako store last month because the project's developer fell behind schedule, is scheduled to open a Maui outlet in February, its second in Hawai'i.
7. RESIDENTIAL REAL ESTATE
The rush to take advantage of a homebuyers credit triggered a flurry of sales in Hawai'i last year, but not enough to keep home prices from falling for the second straight year. Weak demand for housing contributed to the halting of construction on the Moana Vista condominium tower in Kaka'ako and the cancellation of the 12,000-unit Waiawa Ridge development. The median price of a single-family home on O'ahu fell to $580,000 for the first 11 months of 2009 after peaking at $640,000 in 2007. A steady decline in prices has helped more buyers back into the market, and sales volumes have been generally rising since June. Favorable interest rates also have been helping affordability.
What's in store for 2010? The University of Hawai'i Economic Research Organization is calling for O'ahu's single-family home price to fall by another 2.4 percent this year before stabilizing in 2011.
The state's banking sector held up fairly well despite the financial meltdown that forced the closure of more than 140 banks on the Mainland last year. Most local institutions had minimal exposure to problem mortgages that bedeviled many Mainland institutions. One exception locally was Central Pacific Financial Corp., which struggled under the weight of troubled loans to California homebuilders. The parent of Central Pacific Bank last month reached an agreement with the Federal Deposit Insurance Co. and the Hawai'i Division of Financial Institutions that could lead to the sale of the bank.
What's in store for 2010? The gradually strengthening economy should help banks bolster their balance sheets. As for Central Pacific, regulators have ordered the bank to strengthen its capital ratio, and develop a contingency plan to sell or merge the bank if so directed by authorities.
Job losses, pay cuts and sluggish economic activity pushed personal and corporate bankruptcies to a four-year high last year. The roughly 3,100 filings was 49 percent higher than the year before, and was the most since a tougher bankruptcy law went into effect in 2005. Among the bigger filers last year were the Honolulu Symphony, Hawaii Biotech and Honolulu Medical Group. Hilo Hattie, which filed in 2008, emerged from bankruptcy protection this year, while the state's biggest telephone company, Hawaiian Telcom, hopes to exit bankruptcy this year.
What's in store for 2010? Bankruptcy attorneys believe filings will remain high because of some people's continued real estate problems and others who face unemployment or lower work hours, such as state workers who were either laid off or furloughed.
10. GREEN ENERGY
Hawai'i made some progress last year toward the government's goal of generating 70 percent of the state's energy from renewable sources by 2030. Rooftop photovoltaic electrical generation systems sprouted up around the state like nutgrass in a zoysia lawn. Castle & Cooke Hawai'i and SunPower Corp dedicated the state's largest solar farm on Lāna'i, capable of producing enough power to supply up to 30 percent of the island's peak electric demand. There also were setbacks. Hawaiian Electric Co. fell behind in its plan to start up a new generating plant when a renewable biodiesel supply contract was rejected by regulators as possibly being too costly and risky for the utility. HECO subsequently contracted with another provider to supply biodiesel for testing and permitting work at the Campbell Industrial Park generating unit.
What's in store for 2010? David Murdock, the billionaire who owns 98 percent of Lāna'i, is moving forward with plans to develop a $750 million wind farm for exporting power to O'ahu via undersea cable.