Blazes Seen Not Only Curbing Tourism in Near Future, but Raising Insurance Costs Over Time

By Jack Witthaus
CoStar News

August 10, 2023 | 1:47 P.M.

The Hawaii wildfires in Maui that have killed dozens of people and destroyed a wide swath of properties are expected to deal a major blow to the economy on the island after the burning of a major tourism and commercial district.

The fires appear to have razed at least two hotels, the Best Western Pioneer Inn and The Plantation Inn, along with dozens of restaurants, shops, homes and more in Lahaina, a popular destination in West Maui, according to a statement by Maui County officials and reports from the area. About 36 people died, the county said late Thursday, with that toll expected to rise.

Hawaii Gov. Josh Green told CNN on Thursday that as many as 1,700 buildings were destroyed in the fire and about 80% of Lahaina is destroyed. The governor said only some stone buildings were still standing, and he expects the total dollar damage to reach into the billions.

Lahaina’s destruction will have a ripple effect on tourism to Maui, Hawaii’s second-biggest island. Each year, about 2.1 million people visit Front Street, Lahaina’s historic commercial district, according to marketing materials. Lahaina is also Maui’s main cruise ship port, and many passengers stop downtown on their trips.

Matthew McKeever, an associate with the capital markets team of CBRE in Honolulu, said Lahaina is a draw for tourists because it’s one of the largest commercial districts in West Maui. McKeever, who does business in Maui, said many of the properties lost in the historic town are irreplaceable because of their age. He said most commercial real estate for sale or lease appears to have been destroyed in Lahaina.

“There’s going to be a huge void in the market there,” McKeever said.

Business owners are still attempting to understand the extent of the damage, but some Lahaina businesses said that their properties have been lost. Fleetwood Mac musician Mick Fleetwood said on Instagram Wednesday that his popular restaurant, Fleetwood’s on Front Street, was destroyed.

One of Lahaina’s largest commercial property owners is Westlake Village, California-based real estate investment firm U.S. Realty Partners. The company owns roughly 272,000 square feet of commercial space, including a shopping center and another retail center with a Safeway grocery store, along with other smaller retail properties in Lahaina, according to CoStar data. A representative for the company did not respond to a request to comment from CoStar News.

Lahaina also is home to Outlets of Maui, a roughly 147,000-square-foot, open-air shopping mall featuring upscale stores, including Calvin Klein, Coach, Gap, Kate Spade, Ralph Lauren and Tommy Bahama. A representative for the shopping mall did not respond to a request to comment from CoStar News.

Looking Ahead

Tourism likely will be curbed in the near future in Lahaina and West Maui, hotel analysts said. The Hawaii Tourism Authority said Wednesday that nonessential travel to Maui is strongly discouraged, and the tourism authority said it was advising visitors with plans to visit West Maui in the coming weeks to reschedule.

Maui tends to be the strongest island for hotel performance in Hawaii, with the Maui luxury hotels capturing an average daily rate of close to $1,300, said Alan Reay, president of Atlas Hospitality Group, a Newport Beach-based hospitality real estate firm. Reay regularly travels to West Maui.

Reay said it’s likely that hotels and other commercial property owners will face rising insurance costs after the fire as natural disasters continue to drive up insurance expenses for commercial property owners nationwide. Those costs come at a time when hotel owners were already facing rising costs for various expenses, Reay said.

Jan Freitag, national director of hospitality analytics at CoStar Group, said it’s too early to say what the long-term fallout will be on the hospitality industry to West Maui. However, he said it will be challenging for hotel owners to rebuild because of the fire’s displacement of the local labor force, competition for labor and materials and the difficulty of getting building supplies to the island. Full-service hotels typically take two to three years to build from groundbreaking, with ultra-luxury hotels taking longer.

Still, Freitag said, undamaged hotels probably will see demand in the months ahead.

“I wouldn’t be surprised if those hotels saw an occupancy bump up in the short term or medium term,” Freitag said.