Hotel Inventory Slips 5% As Condos, Timeshares Expand

The number of Hawaii hotel rooms dropped another 5 percent in 2005 while the number of timeshares, condominium hotels and even rented rooms in private homes continued to grow, according to a new state report.

The rate of decline slowed, however, from 2004, when the number of hotel rooms fell 11 percent.

The number of timeshare units rose 16 percent last year and so-called "condotel" units were up 9 percent. The shift in supply and increase in demand also pushed hotel room rates up, with 47 percent now charging more than $251 a night, up from 44 percent in 2004. Ten percent cost $500 or more per night, up from 8 percent in 2004.

For the first time, the report also made note of the number of hotel room conversions during the year, with 511 rooms being switched to condos.

Hawaii had 72,889 rooms available last year, up 275 from 2004, according to the state Department of Business, Economic Development and Tourism's annual Visitor Plant Inventory report, which is to be released next week.

According to estimates, another 7,000 units -- approximately half of them condos and half timeshares -- will be added by 2010.

The numbers confirm the continued segmentation of visitor accommodations, the increased interest by visitors to find alternatives to traditional hotels and erosion of the market share held by full-service hotels and resorts. The increase in timeshare and condotel developments, in which visitors own the rooms in which they stay, is likely to add to the continuing debate on whether expansion of that market is good for Hawaii.

The fractional ownership model has been a shot in the arm for owners and operators of aging, outdated buildings, who can finance upgrades by selling individual rooms for upward of $200,000 or more. Investor confidence in Hawaii also is at its strongest level since the 1980s. More than $3.5 billion in hotels have changed hands since 2003, with an estimated $1 billion in room renovations.

"For the first time, we have visitors who have some element of ownership in Hawaii," said Joe Toy, president of Hospitality Advisors, a Honolulu-based travel consulting firm. "There is a chance that they would bring a better sense of stewardship and pride than other hotel visitors who come in for brief periods."

But on the downside are millions in lost tax collections that aren't applied to condominiums and a tightening hotel inventory than makes it challenging for visitors to plan trips.

"The issue of visitor capacity is going to become more pressing," Toy said.

Maui County commissioned Toy to review the impact of hotel conversions on the Valley Isle and expects to initiate or change county laws based on the results of his study.

Another trend documented by the new state study found that more visitors are staying in "individual vacation units" -- rooms in private homes and vacation rentals advertised online.

Between 2004 and 2005, these accommodations increased 31 percent to 2,438 units from 1,867 in 2004. On Oahu, there are 316 such units, a 16 percent increase from 2004; Big Island, 756 units, up 70 percent; Kauai, 763 units, up 35 percent; Maui, 570 units, 4 percent; Molokai, 30 units, down 3 percent; and three on Lanai. Timeshare still putting up the money.