Hawaii Hotel Investment Market
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The Next Generation of Hotel Development in Hawaii

Courtyard by Marriott Kahului Airport

Hawaii is undergoing a recent surge in planned hotel construction. From 1997 to 2012, the visitor accommodation units built relied on a residential, timeshare or club component to make financial sense. During this time, Hawaii’s relatively anemic hotel market and high construction costs kept developers from building new hotels. Until recently, the vast majority of hotels were full-service resort hotels equipped with lots of meeting space, food and beverage outlets and other amenities. Now, most of the recently completed and planned hotels are limited service hotels that are less expensive to build and operate. Further, they cater to a new generation of traveler who do not need these costly amenities.

Four Seasons Hualalai

In 1996, the 243-room Four Seasons Hualalai was built. This was the last full service hotel built in Hawaii that didn’t have a residential or timeshare component.

Recently Completed Hotels

  • In July 2012, the 138-room Courtyard by Marriott hotel opened at Kahului Airport
  • A 75-room Holiday Inn Express opened in November 2014 in Kailua-Kona
  • A 144-room Courtyard by Marriott opened in Laie in June 2015.

There is a bevy of new limited service hotels is planned in Hawaii. These include:

  • Hampton Inn at Debartolo’s Kapolei shopping center development
  • Hyatt Place in Robertson Properties’ Live Work Play Aiea
  • Embassy Suites on the former Kisco site in Kapolei
  • Globally-branded hotel for Krausz’s Downtown Kihei development

Other visitor accommodation projects planned for Hawaii include:

  • Waikiki Trade Center conversion to a hotel
  • Redevelopment of the Coco Palms into a 350-unit hotel with Hyatt soft brand and management
  • A Hilton timeshare is planned for the former Maui Lu site
  • Two Ritz-Carlton Residences with the first 324-unit tower to be completed in early 2016 followed by a 246-unit second tower to be done in 2017
  • 248-unit luxury condotel is planned on the Kings Village site in Waikiki

Rising Construction Costs

Hawaii’s already high construction costs increased 13% in 2014, an additional 3% in the first quarter of 2015. The cost to build a 3-star hotel in Hawaii is 2.9 times the cost to build one in Phoenix or Denver. Likewise, it is 60% higher than Los Angeles and 50% higher than in San Francisco. The construction cost increases may force developers to postpone or abandon their projects because the increases are outpacing the growth in room revenue.

Opportunities for new hotel construction in Hawaii

There will be demand for new hotels in areas with housing and job growth such as Kapolei and Mililani on Oahu as well as other population centers underserved by hotels on the neighbor islands.

New hotel construction will be largely limited to parcels zoned for hotels as it is very difficult to up-zone properties to hotel zoning. Another, opportunity for hotel development will be in conjunction with the City and County of Honolulu’s transit-oriented development (“TOD”) plans surrounding Honolulu’s new elevated rail line. I’m working with Colliers Hawaii’s dedicated TOD team to help hotel developers identify these opportunities.

This entry was posted in: Hawaii Hotel Investment Market
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F. Kevin Aucello has established himself as a leader in the tourism and hotel investment markets in Hawaii, Micronesia, Japan and the South Pacific. Kevin possesses many years of diversified experience providing a full range of advisory services for companies with equity, debt and leasehold real estate interests in the Pacific Rim. Kevin contributes key experience in the sale, strategic management and loan structuring of all types of real estate assets. He has extensive knowledge of all facets of the major global hotel brands and has developed relationships with senior executives in these companies.

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