Oct. 04--Statewide hotel occupancy growth is forecast to moderate in 2014, but room prices are expected to hold up and propel hotel, resort and retail transactions higher.
Joseph Toy, president and CEO of Hospitality Advisors LLC, predicted Thursday that occupancy next year will rise 2.7 percentage points to 81.1 percent, while the statewide average daily rate, or ADR, will grow just more than 8 percent to $249.
Toy said Oahu hotels, which have led Hawaii's comeback from the 2009 bottom, have been achieving real rate growth this year and will continue that trend in 2014. However, his forecast, which was delivered during his annual Visitor Industry Leaders Briefing, anticipates rate and occupancy growth for all islands in 2014.
Toy said Maui hotels may reach the tipping point where rate growth outpaces inflation this year, and Kauai could hit that sweet spot in 2014. Hawaii island's softer occupancies might push full rate recovery into 2015, he said.
"Market expansion still remains uneven, with the Big Island lagging behind Oahu by 22 occupancy points," Toy said "Occupancy is shaping up to be a little softer than I thought it would be."
Pent-up demand for Hawaii from the U.S. market, which drove recovery in 2013, has run its course, Toy said. For example, although statewide ADR rose 11.5 percent to $236 for the summer, occupancy dipped 1.7 percentage points to 78.1 percent.
"We had a pretty strong summer, although our occupancy retreated a bit from the previous one," Toy said. "Our rates, however, obviously went really high mostly because of compression and yield management."
Toy's rate forecast for Hawaii is much higher than Smith Travel Research's forecast for the U.S., which is only expected to see a 4.6 percent rise in 2014 ADR, according to Smith Travel President Amanda Hite.
"Hawaii far and above has done much better in terms of recovery," Hite said.
Rick Egged, president of the Waikiki Improvement Association, said it's clear from the data that Waikiki has driven the increase in demand and ADR in the state.
"I credit the $3.5 billion in private-sector reinvestment for the strength of the market," he said.
Rising rates are likely to continue into 2014 as Waikiki inventory falls by 2,000 units next year due to renovations and redevelopment, which Toy said will push compression across the islands.
"That's going to be good for the rest of us who will have the same number of people presumably wanting to come and less inventory to accommodate them," said Barry Wallace, executive vice president of hospitality services for Outrigger Enterprises.
Waikiki hotels with vacancies likely will be able to command higher rates from consumers, Wallace said. Inventory shortages also may drive some travelers to the neighbor islands, he said.
However, hoteliers aren't the only ones betting that Hawaii's rate growth is sustainable. Relatively low interest rates combined with Hawaii's strong hotel performance, diverse visitor base, improved airline access and low inventory of hotels are fueling investor interest.
"It's a great time to buy a Hawaii hotel, and investors are interested," said Colliers International Vice President Mark Bratton. "I think we'll see three to four more hotel sales in Waikiki this year."
Sales of Hawaii hotels have been on a blistering pace this year with Hospitality Advisors reporting that the value of all transactions through August reached $1.62 billion, nearly matching the $1.66 billion total for all of 2004, a record year for hotel deals here.
"The $99-a-night rooms are disappearing in Waikiki," Bratton said. "They are becoming $139 rooms as new owners renovate and seek returns."
He said Waikiki's strong hotel market also has bolstered retail transactions with average asking rents rising to $14.83 per square foot as compared with $10.09 in 2012. Strengthening neighbor island hotel markets also have helped boost closings and prices for the overall resort real estate market, Bratton said.