Maui bucks a statewide downturn in hotel demand with new developments increasing

Hotel demand is dropping on every major Hawaiian island but Maui, where growth is fueling a development cycle that could add about 10 or more new hotels and timeshares to the market.

Over the last two decades, Maui lost more than 25% of its hotel inventory, but the island now is making up for lost ground. Some of the new hotel development is going into traditional markets like Wailea, where three hotel projects are planned, and Kihei, where about three are in the works.

However, Maui’s hotel market is so hot that Kahului — an ancillary market — could see three projects move forward.

And, there’s talk of at least one, maybe two hotels going up in small-town Wailuku.

What’s happening on Maui?

Wealthy visitors can’t seem to get enough of Wailea, which remains the state’s top-performing hotel destination.

Then there’s the advent of the more intrepid tourist who wants a more “local” vacation, fueling visitor interest in hotels outside of Maui’s traditional resort markets.

Business development in Wailuku, Kahului and central Kihei, near the Maui Research and Technology Park, have increased the need to serve more business travelers. And, crackdowns in illegal rentals — voters last year approved increasing penalties for illegal short-term rentals to an initial fine of up to $20,000, plus $10,000 per day — have decreased the number of places to stay for those attending sporting or other events or whose friends and family don’t have rooms to spare.

Amazing pricing power

These trends coupled with shrinking room supply have created a market where Maui hoteliers are realizing revenue per available room (revPAR) that is four times stronger than the national average, said Jan Freitag, STR senior vice president. Rev­PAR, considered by many in the hotel industry as the most important performance measure, is the price each available room in a property earns regardless of whether it’s occupied.

A nearly 2% rise in hotel demand through September also has contributed to higher occupancy, giving hoteliers amazing pricing power, Freitag said.

“Maui’s hotel market is stronger than Hawaii’s and the nation’s as a whole,” he said. “Demand growth has outpaced supply, and high occupancy is leading to rate growth. That’s very attractive for hotel investors and developers.”

Through the first nine months of this year, Maui hotels achieved the state’s highest revenue per available room and average daily rate, which at $397 was $113 per night higher than Kauai, which averaged the state’s second-highest room rates.

For December’s prime holiday week, even rates at the Residence Inn Maui Wailea are starting at about $800 for a one-bedroom and going up to about $1,400 for a two-bedroom — and that’s if you can even get a room at the extended stay-hotel, which is better known for upscale value rather than high luxury.

“It’s the best-performing Residence Inn in the country. When they started, their nightly fees were a lot less than other Wailea hotels, but demand was so great their fees went up,” said Bud Pikrone, Wailea Community Association general manager. “They are surprising everyone, and that’s why people are looking at building new hotels using that model in other Maui locations. They might not get the same amount of money as in Wailea, but they’ll get more than they normally would on the mainland.”

Mark Bratton, Colliers International senior vice president, said he knows of at least three or four select and limited-service hotel projects that were planned to chase after the success of the Residence Inn as well as the earlier Courtyard Marriott Kahului.

“There’s a lot planned for Maui,” Bratton said. “Strong rates and a diverse market have made it very popular with investors and developers. ”

Shift to business

Interest in Maui ‘s visitor plant isn’t limited to hotels. Timeshares and resort residential projects are also in the works.

“Our customers consistently rank Maui as one of their top requests for expanding our portfolio of resorts, and we’re thrilled to add this spectacular destination for our owners and guests,” said Mark Wang, president and CEO of Hilton Grand Vacations, which has a project under construction in Kihei.

The historical consistency of Maui’s high-performing hotel market is a major reason investors find it so attractive, said Ben Rafter, managing director of Ampersand Venture 1, which recently bought the Maui Beach Hotel and plans to build a new hotel next door on the former site of the Maui Palms.

“Maui’s hotel market offers more stability than other tourism markets in Hawaii and the mainland,” Rafter said. “Maui historically has done really, really well, and it has a nice, diverse audience.”

Rafter said he’s banking that Kahului and the areas around it will appeal to the emergence of the next generation of tourists on Maui that might value exploration over traditional sun-and-sand vacations.

“The shift to exploration doesn’t have to be dramatic to make this work — even if its only 1% or 2% of the people, we think there’s room for new hotels positioned around interest in Kahului, Wailuku, Kihei and Upcountry Maui.”

Jonathan Starr, former chairman of the Maui Planning Commission now turned hotel partner, said he’s working to bring a 156-room, internationally branded hotel, possibly a Hilton Garden Inn, to Wailuku. Starr said he’s hoping the project, which is oriented to business travelers and families with ties to the town, could begin construction in 202o and open the following year.

“We know there are several hundred people on Maui for business that would like to be in Central Maui, but most of them are staying in Wailea, Kaanapali or Kihei. When people are traveling to their lodging on the west or south side, it puts a lot of rental cars on the road,” Starr said. “It’s much more efficient and environmentally preferable if people stay in a hotel where they could walk or travel locally or encourage restaurants and other businesses in Wailuku, which is a redevelopment area.”

Starr has been excited about the potential of Wailuku for some time. Last year he celebrated the signing of the initial construction contracts for the streetscape and utility improvements surrounding the Wailuku civic complex project.

It’s a project Starr said had been in discussion and design for 25 years, with at least 50 public meetings held on it in Wailuku since the mid-1990s.

The first phase of the Wailuku redevelopment, a parking structure, looks to be moving forward despite two Maui County Council attempts to defund it. But the Council has put plans on hold for the project’s second phase, a three-story civic building and plaza.

Fears of over-tourism

Maui is as anti-development as all the Hawaiian Islands, which businesses worldwide have associated with strict barriers to entry. Fears of over-tourism are mounting on Maui, which boasts the state’s highest ratio of visitors to residents.

But objections to new development and over-tourism appear more civil than on other islands, said Keith Vieira, principal at KV and Associates Hospitality Consulting LLC.

“You don’t have residents climbing on tourists’ cars like they did in Kauai earlier this year or asking visitors to make pledges that they’ll behave,” Vieira said.

He said Maui doesn’t have situations like on Hawaii island where protesters are blocking Thirty Meter Telescope progress on Mauna Kea. It’s also not like Oahu where protesters are impeding construction of sports facilities at Sherwood Forest and in Kahuku, where opponents are trying to halt expansion of a wind farm.

Maui residents haven’t mounted major protests recently. But that doesn’t mean that everyone is on board with hotel expansion or that they are even aware of it, said Dick Mayer, a Kula resident who formerly served on both the Maui General Plan Advisory Committee and Maui Planning Commission.

In the spring, when the Grand Wailea Resort sought to add 224 rooms, Mayer was among those who testified against the project. He also plans to testify against the Windward Hotel planned for Kahului when it is slated to go before the planning commission Tuesday.

A common argument from the pro-development side is that new projects bring more jobs. However, Mayer said Maui is already at full employment and that each new hotel room would require another 1.5 workers. Once the families of those workers are added, Mayer said population growth could become significant and worsen Maui’s affordable-housing problem. He also points out that Central Maui hotel development could threaten the burgeoning agricultural industry, which he said needs land and workers.

“We’ve got 2.4 residents for every 1 tourist, which exceeds the 3-to-1 resident-to-visitor ration in the Maui Island Plan,” Mayer said. “My opinion is that we are already at the over-tourism stage, and any one of these hotel projects would add problems. Maui’s not set up to accommodate that kind of growth.”

More growth is certainly coming to Maui, but Rafter said not all of the projects will come to fruition.

“There’s a high likelihood that some of the projects won’t happen … because of community sensitivity, entitlements or because of where we are in the cycle,” Rafter said. “This late in the cycle, people historically go negative on tourism. Some of the projects may not happen at all — I’d expect fewer than half to make it. Still, that’s more than we’ve had in many years.”