Three months after the world’s largest retailer pulled out of Honolulu’s central business district, negotiations are pending to buy Walmart’s former downtown site.

A new owner could be a developer or an owner-user in retail or another business category, and a successful deal, if reached, would become part of a shift in the community where sapped demand for office space is being filled by new housing and hotel projects that could revive a battered retail market.

Commercial real estate brokerage firm Colliers International has reported that from 2020 to 2022, Oahu’s office market — largely concentrated downtown — lost over 240,000 square feet of occupied space, driven mainly by around 9,900 lost office jobs at the outset of the COVID-19 pandemic, followed by a partial rebound of about 5,800 jobs by the end of last year.

Oahu’s office vacancy rate, which had improved to 9.9% in 2019 from around 13% during much of the prior decade, jumped back to historically high territory at 12.9% at the end of 2022. The vacancy rate in the central business district hit 14% at the end of last year from 11.7% in 2019, according to the report.

All this weakness had negative effects on the biggest retailers downtown and contributed to Walgreens closing its Hotel Street store several years ago, followed by Longs Drugs at the Executive Centre last year and Walmart on Fort Street Mall in April.

Since then though, the grocery and convenience store 88 Ranch has opened in the former Longs space, interest has been strong in the Walmart property, and several office conversion projects are in progress or planned.

“A lot of people got kinda down on downtown during the pandemic, and I kinda feel the pendulum is swinging back the other way,” said Jamie Brown, president and owner of local brokerage firm Hawaii Commercial Real Estate LLC.

Brown’s office is located in Davies Pacific Center, a tower slated for partial conversion to residential condominiums.

Honolulu-based developer Avalon Group announced a plan in February to turn the upper two-thirds of the building into 300 to 400 residential condos for sale after paying $96 million to buy the 22-story tower with 378,000 square feet of leaseable space.

The building, located on the block bounded by Bishop, Merchant, Alakea and Queen streets, is currently about one-third vacant, including a ground-­floor retail space once occupied by Longs.

Colliers calculated that the move by Avalon helped reduce the central business district’s office vacancy rate by about 2 percentage points during the second quarter, to 12.8% from 14.9% in the first quarter.

Brown said such conversions can be challenging given construction costs and office building floor layouts, but he expects to see more such projects, given high housing demand and low office demand in Honolulu.

Ground zero

From a single intersection at Bishop and South Hotel streets two blocks mauka of Davies Pacific, all facets of the shift involving residential, office, hotel and retail can been seen.

On one corner, the five-story former Remington College office building is being turned into a 112-room AC Hotel by Marriott, expected to open early next year.

The project is aimed mainly at short-stay business travelers and includes a 50- to 60-seat restaurant and a 1,000-square-foot lounge.

A bit set back from another corner, what used to be Honolulu’s biggest office building is close to completing a conversion to 493 rental apartments.

Turning Bishop Place into The Residences at Bishop Place was announced in 2019 by Douglas Emmett, a California-based real estate investment trust that owns the 25-story building featuring about 490,000 square feet of leaseable space, or enough for a roughly 49-story tower under a more typical building footprint.

Douglas Emmett is due to convert its 23rd floor by the end of this year, and then do the last two floors in 2025 as remaining office leases end. The company, which owns other downtown Honolulu office buildings, has been working to fill vacancies in those properties with tenants leaving Bishop Place.

Yet between South Hotel Street and the revamped tower, a dark reminder of downtown’s retail struggle remains. Here, a two-story building, where Walgreens took over a former Price Busters store in 2014 and closed about five years later, sits empty with the entire ground-floor facade shielded by black fabric and steel grating.

On a third corner occupied by the Executive Centre, the ground-floor anchor space vacated by Longs last year has been filled by 88 Ranch, a grocery and convenience store featuring many Korean products. The store, which had a soft opening May 24 and is next to a Ross Dress for Less, does not yet have an exterior sign and is still working to add fresh meat, fish and produce along with cosmetics and clothing sections. A Niu Health Clinic opened in the store Wednesday.

Jerry Overbeck, a Chicago resident who lives downtown during the summer, was shopping at 88 Ranch on Tuesday and said he was relieved that storefronts left dark in part due to pandemic pressures are being repopulated.

“It’s relieving for me to see new businesses coming in,” he said, adding, “I like Asian food.”

Ana Mendes, a cleaning company owner who moved to Bishop Place a month ago with her boyfriend, who works in construction, said living downtown is positive despite some drawbacks.

“I like it here,” she said. “It’s cool.”

Benefits she mentioned include many restaurants nearby that offset the drawbacks of expensive limited parking and a widespread homeless population.

Mendes hadn’t yet been to 88 Ranch but said she was sad to see Walmart close.

Demographic shift

Walmart was roughly in the middle of Honolulu’s central business district that includes Chinatown, and had opened its 80,000-­square-­foot store and pharmacy with a roughly 400-stall parking garage in 2014 in place of what had been a Liberty House department store since 1982 that was later acquired by Macy’s.

The property, which Walmart bought for $25.9 million in 2013, is being sold by Walmart.

Jon-Eric Greene, a Colliers senior vice president representing the retailer, said there’s been broad interest from developers as well as business owner-users.

“I don’t know at this point which direction it’s going to end up going,” he said, adding that no discussions with prospective buyers involve government entities.

Greene said downtown Honolulu historically hasn’t been a great place for major retailers since office buildings replaced retail after Ala Moana Center was developed in 1959 and shifted the makeup of the area from a place where people went to shop to a place where people went to work.

However, Greene said Honolulu’s downtown office market, which has had an overhang of supply to demand since the 1990s, could become a stronger retail market as part of the ongoing shift to more residential and hotel use.

“I think there’s a lot of momentum to change the demographic in the urban core,” he said. “Downtown Honolulu is going through an interesting period.”

What may result is a broadening of operating hours by retail in the area dominated by restaurants and small shops to serve more residents and visitors downtown in addition to office workers, who tend to be there largely between 7 a.m. and 5 p.m. Monday through Friday.

Rock Tang, a Cushman & Wakefield/ChaneyBrooks senior vice president mainly representing retail and office tenants, doubts that conversion projects will have too much impact because residents occupy far less space in buildings compared with an average of 200 square feet per office worker.

“Retail will continue to be a struggle,” he said.

Conversion projects should produce a net population increase downtown because empty office space is being filled. But such projects can take a long time, and it’s uncertain whether they all will pan out.

Chinatown hotels

Four blocks Ewa of the Walmart site, on a corner of North Hotel and Maunakea streets, a development partnership has been working on turning the historic Wo Fat Building that once housed an acclaimed chop suey restaurant into a 23-unit luxury hotel with a 100-seat restaurant, retail space and coffee shop.

This project by Mighty Union has been in the works since 2018, and in November a project principal expected completion by September. However, interior work still appears to be in a demolition phase and not active. An update from Mighty Union could not be obtained.

One block makai of the three-story Wo Fat Building, another developer plans to build a roughly 15-story hotel with 240 rooms and a rooftop bar and restaurant on a parking lot once occupied by a Yee Hop warehouse fronting Nimitz Highway and overlooking Honolulu Harbor.

This project by ‘Ikenakea Development is aimed at providing upscale accommodations for business and leisure travelers. The developer projects that construction will begin in 2025 and be finished in mid-2026.

Meanwhile, Colliers forecasts that more conversion projects will remove an additional 640,000 square feet of office space on Oahu, including some downtown, by the end of 2025.