Hawaii vacation rental occupancy rates are declining as rates continue to rise

In parallel with massive legislative reforms both statewide and on Maui, Hawaii’s vacation rental market is already experiencing a marked decline in occupancy rates. Mixed messages from the state didn’t help either. That’s in stark contrast to the much more robust performance of hotels in Hawaii.

A recent State of Hawaii report for March (below) highlights this trend, with vacation rental occupancy rates significantly lower than hotels, indicating changing preferences, increased concerns and potential impacts on Hawaii’s tourism and economy. Mixed messages from the state

This downturn comes the same week as recent legislative action, including Governor Josh Green signing the bill that gives counties the power to regulate or even eliminate vacation rentals altogether. Maui has already taken aggressive steps by planning to phase out approximately 7,000 rental properties, as detailed in our previous coverage. These developments reflect a broader strategy to repurpose short-term vacation rentals in Hawaii to alleviate the state’s acute housing shortage.

The decline in visitor interest and occupancy is significant for vacation rentals in Hawaii.

Statewide, vacation rental occupancy fell to just 60% for all of 2023, a sharp decline of 25% compared to 2019. This decline in demand coincides with a 14.5% decline in the supply of short-term rentals since the era before the pandemic. reflects a shrinking market.

At the same time, the price of vacation rentals in Hawaii rose 45% in 2023 compared to pre-Covid, with the average daily rate reaching $301, excluding 18% taxes and multiple fees.

For March 2024, the state DBEDT reported a significant decline in occupancy rates, reflecting growing dissatisfaction among visitors for short-term rentals compared to traditional hotels in Hawaii. The data for this period shows a pronounced gap between the occupancy rates of holiday homes and hotels.

Despite a slight increase in supply, demand in March only increased slightly by 4.3% compared to the previous year, while remaining 25.9% below the level of March 2019. The statewide vacation rental occupancy rate was 57.4% in March. This occupancy rate marks a decline of 5.3 percentage points from 2023 and an even more significant decline of 21.2 percentage points compared to 2019. The average daily rate (ADR) for vacation rentals increased to $337, an increase of 3.5% from 2023 and as much as 57.8% from 2019, indicating widespread higher prices despite lower occupancy rates.

This March occupancy data of 57.4% was in stark contrast to Hawaii’s hotel industry, where occupancy during the same period in March 2024 was 74.6%.

The decline in vacation rental performance probably doesn’t even reflect the idea of ​​the regulatory changes that are just beginning. However, visitor sentiment has already changed, partly due to higher prices, inconsistent quality and other concerns, including questioning the legality of short-term rentals. This is consistent with historical data indicating a long-term decline in visitor interest in vacation rentals in Hawaii, including on Maui and Kauai.

The legal obligation to restrict holiday rentals itself reflects a significant policy change. The state has now granted counties explicit authority to phase out vacation rentals in Hawaii, creating an opportunity to reshape the landscape of visitor accommodations on the islands. This move is supported by entities such as the Hawaii Lodging and Tourism Association (HLTA), which sees it as a means to reduce competition for hotels and potentially stabilize or even increase hotel occupancy and prices.

Hawaii is grappling with these changes and the economic consequences are profound.

The vacation rental industry, once a boon to Hawaii’s tourism economy, faces a precarious and uncertain future. Property owners, local businesses and service providers who have long relied on the booming vacation rental market may find themselves in new economic realities.

The full impact of these recent changes on Hawaii’s tourism, local housing, and overall economy remains to be seen. As stakeholders continue to debate this topic and help shape the future of vacation rentals in Hawaii, the outcome will have profound and long-lasting implications for visitors and residents of Hawaii.