2021 Year in Review
2021 started out with the State of Hawaii’s visitor industry suffering the effects of the first year of the Covid pandemic. As the new year started, State of Hawaii visitor arrivals dropped back to 20% of 2019 arrivals from about 33% in late December and we questioned whether Hawaii hotels reopened too soon. That was short sighted as visitor arrivals started trending up and airlines began adding more seats.
Spring Break Surge
There was a surge of visitors during spring break with arrivals reaching 68% of 2019 numbers. Kauai rejoined the Save Travels Hawaii program in April and we hoped for the State to start a vaccine passport program. As the rebound was westbound driven, neighbor island hotels were the chief beneficiaries. Our visitor infrastructure was caught off guard with restaurant seats and rentals cars in short supply. Visitor arrivals kept rising along with air seats and ADR’s. We started seeing dramatic ADR increases of around 40% over 2019 for neighbor island properties. We were not sure if this was a permanent trend or just “revenge travel”.
No Deaths and More Taxes
Waikiki hotels, despite a lack of international visitors, were also able to raise rates. This helped hotel owners work in concert with their lenders to avoid foreclosure. With success came bad policy decisions and Maui council members introduced a moratorium on new hotel construction. The state legislature allowed the counties to levy an additional 3% transient accommodations tax to give Hawaii the highest hotel taxes in the nation. Each county was allowed to recoup lost revenue after the state Legislature stopped sharing TAT revenue with the counties.
Neighbor Island Hotels Benefit
The neighbor islands continued their ADR-driven recovery while Oahu RevPAR was roughly 20% below 2019. This trend continued for the rest of the year, and we now believe the higher neighbor island ADR’s will be a permanent fixture. The Delta variant reared its ugly head in late July. On August 23rd, without any forewarning to the visitor industry, Governor Ige told visitors not to come to Hawaii. Despite a bevy of cancellations, neighbor island ADR’s stayed high and visitor arrivals eventually rebounded. Total air seats to Hawaii are now on par with 2019 with more westbound and fewer international seats.
2021 Hotel Investment Market Review
in 2021, nine hotels comprising 1,765 rooms sold in Hawaii for a gross consideration of $841 million or $476,000 per key. The average going in cap rate was only 4.3%. That was the lowest annual cap rate in our database though quite a few years have been below 5%. In sum, 2021 was not the year of distressed pricing. Continued strength in neighbor island ADR’s might turn some of these purchases into real bargains.
