Is Waikiki’s tourism growth sustainable?

Is Waikiki’s tourism growth sustainable?

October 21 2013

By Ron Watanabe, HNN columnist

Waikiki, Hawaii, has seen some growth, but there are some potential pitfalls for the market.

Hawaii’s tourism market continues to boom in 2013, with tourism revenues up nearly 5.1% for the first eight months of the year, according to the Hawaii Tourism Authority.

Most of the growth is attributable to the strong performance of Waikiki hotels and the increase in hotel room revenue. While occupancy has grown modestly during the past three years, the static supply of available rooms and strong demand in Waikiki, Hawaii, has pushed the average daily rate up about 35% since 2010, according Hospitality Advisors and STR, parent company of Hotel News Now.

According to STR, revenue per available room in Oahu, Hawaii, grew 13.6% in 2011 and 16.7% in 2012. Year-to-date RevPAR through August was up 14.6% to $178.56, from the same period last year.

RevPAR through August in Oahu was up 14.6% to $178.56.?Waikiki is the most popular visitor destination in Hawaii.?There are few opportunities for new supply in Waikiki.

Potential pitfalls

While strong RevPAR is good news for now, this rate of growth might not be sustainable. The reasons include competitive factors, such as air seat capacity, rising airfares and competition from less expensive destinations.

The increasing hotel operating costs are pushing operators to increase room rates, making Waikiki hotels too pricey for many people. Also, pressure from new hotel owners to increase room rates in order to justify their investment might cause hotels to lose visitors to more affordable resort destinations.

As the older hotels are modernized and upgraded they are being repositioned, and Waikiki is losing its inventory of economy hotels.

Wages and employee benefits continue to increase, and Hawaii’s hotel employees and unions continue to argue for higher wages and benefits in order for their workers to keep up with Hawaii’s high cost of living.

In addition, Hawaii’s energy costs continue to increase. While Hawaii is expanding its energy resources by implementing wind, photovoltaic, solar and other sources, it is still largely dependent on oil to run its power plants. Petroleum products comprise 75% of Hawaii’s electricity use, according to the U.S. Energy Information Administration. As a result, energy costs continue to be a major source of concern for hotel operators.

Recently, a substantial number of hotels have changed hands and each at substantially higher prices than previously valued. As a result of the hotel sales, comparable sales prices the city uses to assess real property are increasing and will eventually result in higher property taxes.

Finite room capacity in Waikiki

Waikiki, the most popular visitor destination in Hawaii, with nearly one-half of the state’s hotel units, is nearing capacity.

The State of Hawaii and the Department of Business Economic Development & Tourism projects approximately 8.4 million visitor arrivals to Hawaii in 2013, reaching nearly 9 million by 2016, both all-time highs. As Waikiki hotels reach capacity, some wonder where these visitors will stay. Oahu’s nearly 29,000 rooms are averaging approximately 85% occupancy through August, according to STR. The actual and forecasted visitor arrivals are shown below.

Waikiki, the economic engine for Hawaii’s tourism industry, is fully built out and offers few opportunities for new supply side additions. Visitor arrivals to Hawaii can only grow if visitors choose to stay on neighbor islands.

However, getting visitors to the neighbor islands might be problematic. Travelers from Japan, China and Korea are particularly inclined to visit only Waikiki because of the shopping, dining, and other attractions and activities that are available only on Oahu. Visitors are also attracted by the more moderate-priced accommodations that Waikiki offers, compared to the higher-priced neighbor island hotels.

While Hawaii revels in the success of its tourism industry, one must wonder: Is this growth and success sustainable?

Ron Watanabe, ISHC, is president of Ron Watanabe & Associates, a hospitality and real estate consulting firm based in Honolulu, Hawaii. He provides market analysis, asset management, brokerage, litigation support and expert witness services. He can be reached at 808-782-8322 or email