Renovations reduce budget hotel room availability on Oahu

By Shane Nelson
ShaneNelsonWaikiki has enjoyed a dramatic renaissance in recent years, fueled by widespread reinvestment and renovation to the destination’s hotel product that’s also spurred extensive refurbishment to the area’s retail outlets and the introduction of many new top-notch restaurants.

In the wake of those improvements, however, the availability of budget accommodations in Waikiki, and across the island of Oahu, has been reduced significantly.

According to Smith Travel Research, Oahu was home to 33 budget properties in January 2006. By the end of last year, that number had dropped to 27, resulting in more than 700 fewer budget hotel rooms across the island.

Based on the STR data, the number of budget rooms available across Oahu and Waikiki annually has plunged nearly 10% in the past six years.

Changes at Outrigger Hotels & Resorts, one of Hawaii’s largest management companies, over the past decade offer a good example of the significant repositioning Waikiki has seen in recent years.

In 1999, the company launched its Ohana brand, which included 15 budget and economy hotel properties in Waikiki. According to Barry Wallace, Outrigger’s executive vice president of hospitality services, the Ohana brand is made up of only midprice properties today.

“Nobody really builds new in Hawaii anymore,” he said, pointing to the prohibitive cost of real estate and increased prices for materials. “So what winds up in the budget category is an old hotel that perhaps was once a luxury hotelInsight or an upscale hotel but has now deteriorated. So the budget category in Waikiki tends to be filled with older and what would be noncompetitive properties on the mainland.”

Many of the Ohana budget properties were renovated during the Outrigger’s large scale Waikiki Beach Walk development, which finished up in 2006 and included the last newly built condo hotel in Waikiki—the Trump International Hotel Waikiki Beach Walk.

Hawaii hotel industry veteran Joseph Toy, president and CEO of Honolulu-based Hospitality Advisors, said most of Waikiki’s hotels were built back in the late 1960s and 1970s before many were purchased by Japanese investors in the 1980s.

Following the Japanese recession in the early 90s, many Waikiki properties weren’t renovated on the typical 10- to 15-year cycle, Toy said, and as a result, Waikiki suffered.

“Waikiki was definitely in a deteriorated state in the late ’90s,” Toy said. “There was a lot of concern about Waikiki becoming an irrelevant market because visitors were looking at other destinations that were fresher.”

According to Toy, money from U.S. investors poured into Waikiki between 2002 and 2007, purchasing the deteriorated properties and funding substantial renovations.

“I’ve never seen a destination reposition that successfully in such a short period of time,” he said. “We really went from a budget destination that was tired to a fresh destination able to elevate its visitor profile to a much more affluent traveler.”

Both Wallace and Toy agreed that there are fewer budget hotel rooms in Waikiki today but said the improved balance of accommodations there better reflects existing demand.

“During off seasons, though, the lower end of the market has a lot of capacity, and that may change the pattern of when the budget market travels,” Toy said, noting that Waikiki is starting to enjoy solid occupancy figures during what are traditionally shoulder periods.

“Traveling in April may be a better option than say February for many budget travelers because the rates are financially more feasible,” he continued. “Plus trading up, in terms of room product, is also an option.”

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