Hawaii’s tourism industry is edging closer to another record year despite a few dips in arrivals tied to worries about forces of nature, ranging from Kilauea’s lava flow to hurricane forecasts.
Joseph Toy, president and CEO of Hospitality Advisors LLC — a Honolulu-based firm that specializes in consulting services to the tourism, hospitality and real estate industries — is optimistic about the tourism industry’s overall health.
“Since the recovery from the Great Recession, the industry has enjoyed an unprecedented period of hyper-growth with … annual and/or monthly records of hotel occupancy, revenue and ADR (average daily room rate) over the past several years,” Toy said. “This was driven largely by the Oahu market, which had maintained an exceptional annual hotel occupancy of approximately 85 percent.”
Part of this hyper-performance is linked to a reduction of almost 5,000 hotel rooms in Waikiki due to conversion of hotels to timeshare and condos during the early 2000s.
“Hotel inventory continued to be constrained … as a number of hotels underwent major renovation and upward re-positioning to earn higher ADRs,” Toy said.
The Wisconsin native and self-described “Chinese cheese head” holds a dual degree in accounting and international finance from the University of Wisconsin, and a University of Hawaii master’s degree with a concentration in tourism and resort development.
Question: Hospitality Advisors was formed nearly two decades ago. How did it take shape?
Answer: Prior to my starting Hospitality Advisors, I was the director and practice leader of PricewaterhouseCoopers’ Global Hospitality Consulting Group for the Asia Pacific/Hawaii region. When the firm left Hawaii to consolidate its offices to the mainland, this gave me the opportunity to stay in Hawaii and start my own practice in 2000.
In addition to our core group, we often work with other professionals, including architects, land planners, engineers and law firms as an extension of our services for large-scale projects.
Q: Could you elaborate on the range of consulting for Hospitality Advisors?
A: Our over-arching services fall under the umbrella of strategic planning consulting. … Our tourism consulting services focus on economic impact, policy development and destination master-planning and management for our international, U.S., state and local government clients.
Hospitality consulting services are provided to a broad range of sub-industries in the market, including the resort retail, resort residential, airline, attractions, golf, timeshare and hotel industries. Services include market and financial studies, operational reviews, repositioning, concept and branding and strategic planning.
Hotel and resort consulting represents the largest industry sector of our practice, with services ranging from initial concept development through profit improvement and repositioning.
Hospitality real estate consulting represents our primary core services and includes resort master-planning and development services, market and investment feasibility, due diligence and transaction support.
Our clients include Goldman Sachs, MSD Capital, Blackstone Capital, Howard Hughes Corp., Trinity Investments, The Resort Group, Marriott International and China Oceanwide Inc.
Q: Comparing your early years in the business to today, what do you see as the most striking changes in tourism here?
A: The changes to Hawaii’s tourism industry have been quite dramatic. When I moved to Hawaii in the early 1980s, most visitors relied on travel agencies and tour companies. At that time, the U.S. market was still driven by “mass market” wholesale and tour packages primarily for the mid-market.
Also, the Japanese market to Hawaii was just starting to explode. At that time the Japanese government aimed to “export” 10 million Japanese visitors and their spending by 1990 as a means to offset large trade surpluses from the U.S. and other countries. For most Japanese visitors, it would be their first trip outside of Japan.
Today, travel markets both globally and in Hawaii have become extremely sophisticated and much more efficient. In particular, technology has vastly shorted the travel distribution system between suppliers and consumers through creation of online booking systems.
… One of the major trends in the industry is driven by highly experienced travelers seeking an “embedded” experience, such as by staying at a short-term vacation rental within the local community. For Hawaii, such visitors generally are repeat visitors seeking a more authentic stay.
Q: At the Global Tourism Summit, held earlier this month at the Hawaii Convention Center, you served as moderator for a session titled, “How Destinations Manage Both Legal and Illegal Vacation Rentals.” It focused on San Francisco, New Orleans and Los Angeles. What were your takeaway thoughts?
A: … The issues that these destinations faced for the most part are identical to ours to varying degrees. Vacation rental policies related to taxation, licensing, and impact mitigation on residential neighborhoods and housing inventory are being developed by all three destinations. At the same time, these destinations also recognize the positive market and economic contributions that this segment provides.
To address these issues, they have developed a cooperative working “partnership” with platforms such as Airbnb and HomeAway to help enact legislation for the industry in a healthy and positive manner.
One of the legislative cornerstones for the three destinations was to agree to let the platforms collect and remit taxes from the rental owners to the government, with potential fines to both the platform and owner for any violations. Some of the destinations required minimum owner residency or maximum number of rental days allowed as part of its regulations.
Q: By failing to effectively crack down on illegal short-term vacation rentals or expand the legal inventory the state has missed out on fines and tax revenues, respectively. What are your thoughts on how to address this lingering problem?
A: … When advising on such tourism policy questions, we always look at other destinations for possible solutions or pitfalls to learn from. There’s an example with a panel I moderated. The panelists actually had meetings the following day with Hawaii policymakers to share lessons learned.
… The vacation rental market has been a part of Hawaii’s visitor industry since the 1960s, but in a highly unstructured way as owners used classified ads or real estate agents to rent individual vacation units.
The emergence of rental platforms in the late 2000s has helped put structure around an otherwise unstructured industry, which for the first time has provided emergence of more reliable real data on the number of units and listings available in the market.
… The improved information has helped other destinations develop more effective legislation to address the myriad of issues related to vacation rentals. Concerns over tax collection, preservation of neighborhoods, protection of residential rental inventory and maintaining viability of traditional hotels are all legitimate concerns.
Based on our prior research, given the 85 percent hotel occupancy rate on Oahu, these concerns will need to be balanced with the excess demand of 320,000 visitors and $430 million in spending that were absorbed by legal rentals in 2017. Also, the vacation rental market contributed approximately $8,000 in annual earnings to Hawaii residents offering vacation rentals.
Q: Do you think there should be more hotels in Hawaii? Or should there be more of some other sort of lodging for visitors?
A: Oahu hotels have been at capacity occupancy levels since 2013, and there are certain market segments, particularly in the mid-market, and locations that are under-served, including central Oahu, Waikiki and certain Honolulu locations. Planning for new hotels are currently underway at various stages, which should help alleviate tight capacity for the island.
The most dynamic market is West Oahu, where the development of mid-market properties in Kapolei is helping to address the shortage of hotel rooms for this segment.
