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In Focus: Surf's up for Waikiki hotels.
Sunday, 12th January 2014
Source : Christopher Remund - HVS San Francisco

Waikiki leads the top 25 markets in RevPAR growth; visitation is on an upswing, but stays are getting shorter and hotel transactions picked up the pace in 2013.

One of the most popular resort markets in the United States, Waikiki, is famous for its beachfront hotels, long surf break, and traditional Hawaiian hospitality.

Waikiki is a densely developed, pedestrian-oriented tourist district located between downtown Honolulu and Diamond Head National Monument, along the southern coast of O’ahu, the most populous of the Hawaiian islands.

Waikiki reflects a diverse mix of development with luxury hotels and high-end boutique shops juxtaposed with mid-scale lodging and retail outlets. Full-service hotels with the highest-ratings are located near the beach with ocean, Diamond Head, or sunset views. High-rise condominium and apartment buildings dominate the landscape farther inland. Vacant land is essentially unavailable, and large hotels currently occupy all prime beachfront locations.


Waikiki is situated on the southern coast of O’ahu in the state capital of Honolulu. Honolulu’s largest employers are dominated by the medical, government, and hospitality sectors. Roughly one-third of the largest 30 employers are involved in healthcare or other medical related industries.

Two major Honolulu-based hotel companies, Kyo-Ya Company and Outrigger Enterprises Group, are among the largest employers, as are four other hotels in Waikiki. Other hospitality-related employers include tour and transportation companies, as well as the Polynesian Cultural Center.1

Honolulu’s unemployment rate for November 2013 was 4.2%, a decrease of 0.5 percentage points year-over-year. In comparison, Hawaii’s overall unemployment rate was 4.4% (down by 0.9 percentage points from November 2012), the fifth lowest in the U.S. The national unemployment rate in November was 7.0%.2

MAP OF HONOLULU (with WAIKIKI highlighted in red)
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People travelling for pleasure / vacation make up the majority of visitors to Hawaii, constituting 72.6% of total 2012 visitation. In the year-to-date period through October 2013, total visitation to Hawaii increased by 3.8% over 2012, while visitation to O’ahu increased by 5.4%.3

Tourism from southeast Asia, China, and Korea has supported strong year-over-year growth from those markets due to increased direct flights to those locations. Flights from China increased from one flight to four flights per day from 2012 to 2013 and Hawaiian Airlines added nonstop service to Taiwan in July 2013.

Year-to-date through October 2013, visitor arrivals to O’ahu by air from the US market increased by 2.5% from this point last year; Canadian arrivals increased by 4.8%; and Japanese visitors increased 3.3%.

Although year-to-date travel has increased, the U.S. government shutdown in October 2013 contributed to a decline of 5.8% in domestic visitation to O’ahu for the month of October compared to 2012.

4Hoteliers Image LibraryThe impact of the decline in visitor traffic from the U.S. was offset by a 9.4% increase in visitor traffic from Japan, resulting in an overall increase of 2.2% for the month.

The average visitor in October 2013 to Honolulu County stayed 6.5 days (a slight decrease from 6.8 days last year).

The Hawaii Dept. of Business, Economic Development, and Tourism (DBEDT) attributes the shorter length of stay as a response to rising hotel room rates4. Tourists from Japan continue to be the biggest spenders, with an average per person per day spending of $293.00 (a decline from last year’s $329.00).5

The decline in per day spending by Japanese travelers is linked to the depreciation of the Japanese yen, as well as the rising hotel room rates. For 2014, the DBEDT expects growth rates of visitor arrivals, visitor days, and visitor expenditures for all of Hawaii to be 2.7%, 2.8%, and 4.2%, respectively.6


Waikiki is a vibrant center of activity that has undergone considerable revitalization during the past decade. Although historically constrained by restrictive zoning, infrastructure investments, and improvements to existing structures, recently completed redevelopment projects have greatly improved the visitor experience and should maintain Waikiki’s status as a premier vacation destination.

The $700 million Waikiki Beach Walk project, located on 7.9 acres, features an outdoor entertainment plaza, 90,000 ft2 of retail space with specialty retailers and restaurants, the Wyndham Vacation Ownership towers with 195 units, and four hotels (the Outrigger Reef Hotel, the Embassy Suites, the Trump Tower luxury-condominium hotel, and a proposed luxury boutique hotel).

With the exception of the proposed boutique hotel, the Beach Walk redevelopment project is complete and has been proclaimed a major success. The Beach Walk was developed by Outrigger Enterprises Group and is the largest development in Waikiki’s history to date.

Redevelopment and Renovation on the Horizon
The Sheraton Princess Kaiulani is scheduled to close on August 1, 2014, to undergo renovations, which are expected to take up to three years. The $500 million redevelopment will be the highest reinvestment ever on a single property in Waikiki.

Plans include the complete renovation of the Ainahau Tower into a 650-room hotel and the demolition of the Princess Tower and the Kaiulani Tower to be replaced with a single tower containing 300 hotel rooms and approximately 135 residential condominiums.7 There have also been discussions that a portion of the propety will be converted to a St. Regis as part of the redevelopment; however, no official plans have been released.

The Diamond Head tower of the Westin Moana Surfrider is scheduled to undergo a substantial refurbishment of its guestrooms in 2014.

A luxury condominium hotel may eventually stand at the site of King’s Village Shopping Center, a retail complex built in 1972 but designed to resemble Honolulu circa 1890. BlackSand Capital LLC bought the center in 2012 for $41.25 million, and has formed a partnership with Kobayashi Group and MacNaughton Group for redevelopment of the property. Construction is expected to begin late 2016, but this timeline is tentative due to potential local community pushback about redevelopment of this archeological site.

Other notable hotel refurbishment projects in Waikiki include the Hyatt Regency, which was purchased by Blackstone Group LP in August 2013. The hotel is scheduled for a $100 million revamp of the guestrooms and public areas beginning early 2014, which should take roughly 18 months to complete.8 The Ohana Waikiki West and Hilton Hawaii Village are also scheduled to be “spiffed up” over the next year.9

The popular International Market Place, located off of Kalakaua Avenue, has been earmarked for redevelopment. The $350 million project, funded by the Queen Emma Land Company, calls for the replacement of the existing marketplace - the Waikiki Town Center - and the 357-room Miramar hotel, with a new retail, dining, and entertainment complex. The entire six-acre block area is slated to be demolished with construction of a new seven-story structure on the Kuhio Avenue side to include two levels of commercial space and five levels of parking.

The project will increase the amount of commercial space in the center of Waikiki by 165,000 ft2 to 355,000 ft2 as well as create 1,000 construction jobs and 2,500 permanent jobs. In June 2013, the Queen Emma Land Company announced that Saks Fifth Avenue would act as an anchor store for the redevelopment.

The project received approval for a major special district permit from the city's Department of Planning and Permitting in January 2013. Groundbreaking is planned for early next year and the new marketplace is expected to be completed in early 2016.10


The total island of O’ahu hotel market contains approximately 30,500 rooms, of which nearly 26,000 are considered to serve Waikiki demand in particular. Waikiki Beach contains the bulk of the hotel room inventory due to its popularity as a major tourist destination.

In some parts of Waikiki, the hotels stretch three blocks back from the beach and range from five-star properties to older motels in both high-rise and low-rise structures.

New development

4Hoteliers Image LibraryRestrictive zoning in Waikiki limited new hotel development during the 1990s and early 2000s.

Despite some changes to the zoning code in 2003 to allow for less stringent open space, parking, building height, and sidewalk dining requirements, the zoning code in Waikiki is still considered a challenge for developers. Given the lack of vacant developable land in Waikiki, restrictive zoning and the cost of hotel development, very few hotels have been built in recent years.

Most new hotel developments have been structured as condominium or timeshare ownership, where the developer can recoup construction costs through sell-off of the units. There is currently only one ground-up hospitality project under development: the Ritz-Carlton Residences will be a 309-unit luxury condominium located at 2121 Kuhio Avenue.

Honolulu City Council approved the project in January 2013, pending minor design changes. Construction is well under way and nearly 90% of the units have been sold. The developer of the project, Parcep LLC, is also considering a 20- to 24-story tower that may include 200 units; however, no specific number of units has been released and the tower is still in the early planning stages.11

Despite the lack of new development activity, there have been some notable renovations and brand changes at exisiting properties. These include the conversion of the former Continental Surf Hotel on Kuhio Avenue into the Vive Hotel Waikiki in mid-2013, the rebranding of the Seaside Hotel Waikiki into the Shoreline Hotel Waikiki by Joie de Vivre following a multi-million dollar renovation, and the renovation and re-branding of the Ocean Resort Hotel into the Hyatt Place Waikiki Beach in late-2011.


Occupancy in O’ahu is at historic peak levels and average rate continues to demonstrate robust growth. The past three years have seen double-digit average rate increases statewide, although occupancy rates lag slightly on the other islands.

Concerns surrounding drug-related violence in Mexico partly contributed to the increase in domestic travel to Hawaii over the last few years. As these concerns subside, U.S. travelers are beginning to return to Mexico; however, the increase in traffic to Hawaii from Asia is expected to offset any loss in domestic travel.

Compared to the same period in 2012, O’ahu led the top 25 U.S. markets in average rate growth through the third quarter of 2013 at 13.3%, while RevPAR grew 11.3%.12 With increased airlift and the growth of the South Korean and Chinese markets, the outlook for Waikiki remains very positive.

Hoteliers are expected to continue to grow average rates while demand levels remain high and major hotels in the market undergo refurbishment projects. As the average rate push continues, more price-sensitive travelers may be priced out of the market.

Along with the depreciation of the Japanese yen, record high room rates may result in some moderation in occupancy in Waikiki over the next few years. In the short term, occupancy levels are expected to remain high with the temporary closure of the Sheraton Princess and Miramar hotels for redevelopment.


Historic interest rate lows and the strength of the Waikiki hotel market contributed to an acceleration of transaction activity over the last year. Seven transactions occurred between January and November 2013, up from two in 2012.

Notable transactions include the purchase of the Hyatt Regency Waikiki by the Blackstone Group (who already own the largest hotel in Waikiki - the Hilton Hawaiian Village). The partnership behind the King’s Village Shopping Center redevelopment is also behind the recent purchase of Ohana Waikiki West, with plans to convert the budget property to an upscale one.

With one exception, the remaining transactions of 2013 (where data were available) were in excess of $300,000 per room, demonstrating the strong values being evidenced in the Waikiki market.

One of the more notable transactions involved the sale of the Courtyard by Marriott Waikiki Beach in April 2013 for $318,000 a room, followed by a resale of the leasehold interest at $184,000 a room in June 2013. Highgate sold the 99-year lease to RLJ Lodging Trust, but will continue to manage the property.

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Despite a slowdown in visitor arrivals toward the end of 2013, primarily driven by the U.S. government shutdown, the outlook for Waikiki remains positive.

Airlift is improving and visitation from Asia continues to grow. The depreciation of the Japanese yen and record high hotel rates are beginning to constrain overall spending for travelers from Japan; however, demand for hotel rooms remains high.

Travel from China and South Korea has shown robust growth over the last year and these markets remain relatively untapped, with the expectation for sustained growth for the foreseeable future. The closure of two significant hotels for redevelopment may lead to compression in the short term, allowing occupancy levels to remain high.

The current brisk pace of hotel transactions is expected to continue in 2014, as the lack of new supply in the foreseeable future and other positive trends should continue to support a strong market performance.

Notes & Ref:

1 State of Hawaii Open Data portal,
2 State of Hawaii Department of Numbers,
3 State of Hawaii Department of Business, Economic Development & Tourism, “4th Quarter Tourism Forecast,”
4 Ibid.
5 State of Hawaii Department of Business, Economic Development & Tourism, “2013 Arrivals at a Glance by Month,”
6 State of Hawaii Department of Business, Economic Development & Tourism, “4th Quarter Tourism Forecast,”
10 PR Newswire, “Taubman Centers And Queen Emma Land Company Announce Plans To Move Forward With The Revitalization Of The International Market Place In Waikiki,” August 9, 2013.
11 Duane Shimogawa, “Ritz-Carlton Waikiki developer could add second 20-story tower,” Pacific Business News, October 15, 2013.

About HVS
4Hoteliers Image LibraryHVS is the world’s leading consulting and services organization focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries. Established in 1980, the company performs 4500+ assignments each year for hotel and real estate owners, operators, and developers worldwide. HVS principals are regarded as the leading experts in their respective regions of the globe. Through a network of more than 30 offices and 450 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. Superior Results through Unrivalled Hospitality Intelligence. Everywhere.

HVS CONSULTING & VALUATION in San Francisco, established in 1985 by Suzanne R. Mellen, performs numerous and varied consulting and valuation assignments. Our feasibility studies and appraisals have won wide acceptance among a broad base of developers, investors and the lending community.

Authors & Contributors
Christopher Remund
is a Senior Associate with HVS San Francisco. He specializes in hotel and motel valuations, market studies, and feasibility reports, and has evaluated a range of existing property types - from large full-service resorts in destination areas to smaller limited-service hotels throughout the United States and Mexico. Chris earned his B.S. degree in Hospitality Administration magna cum laude from Boston University.

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