Even as Hawaii basks in the glow of native son President-elect Barack Obama, its hotel industry is beginning to feel the pinch of the global financial crisis.

High fuel prices earlier in the year, the bankruptcy filings of Aloha Airgroup Inc. and ATA Airlines Inc., which previously served the region, and the nationwide slump in consumer confidence has slammed Hawaii's tourism industry. It welcomed 9.3% fewer visitors this year through September compared with the year-ago period, according to Hawaii's Department of Business, Economic Development and Tourism.

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Walt Disney Parks and Resorts

Walt Disney is starting construction this week on a family resort, rendered above, in Oahu, Hawaii.

Hotels are slashing room rates. September occupancies on the island of Oahu fell to their lowest level for the month since 2002, according to Smith Travel Research, a travel-research firm, and plans for a hotel renovation have been put on hold.

Honolulu-based Outrigger Enterprises Group, which has full or partial ownership in or manages nearly 8,000 hotel rooms in Hawaii, pulled the plug recently on a $40 million renovation of the Ohana Islander Waikiki Hotel. Renovations that were to have transformed the formerly midscale 280-room hotel into an upscale destination will wind down and stop early next year, and the hotel will be mothballed until conditions improve, said David Carey, Outrigger's chief executive. Existing retail in the property, which includes an art gallery, will remain open, he said.

"It's an unusual decision, but these are unusual times," Mr. Carey said. While the project is self-financed, Mr. Carey said Outrigger wants to be conservative and keep more cash on its balance sheet so it can come out of the downturn ready to snap up potential hotel bargains. "We think that at the end of this thing there are going to be some tremendous opportunities, and that some owners are going to be forced to sell at prices that are extraordinarily attractive," he said.

A number of developers still are moving forward with plans on Oahu, which is home to more than 900,000 people and the Honolulu metropolitan area. This week, Walt Disney Co.'s Walt Disney Parks and Resorts is beginning construction on a family resort in Oahu. It is slated to include 350 hotel rooms and 480 time-share villas when it opens in 2011.

Meantime, Los Angeles-based Irongate, now developing the 38-story Trump International Hotel & Tower Waikiki, said it has construction loans in place to complete the project as planned later next year, said Jason Grosfeld, a founder of Irongate. Mr. Grosfeld said he is optimistic that the demand for the high-end units would be sustained in part by vacationers from Asia. The project's approximately 464 hotel-condominium units were presold at an average sales price of about $1.5 million.

By the NumbersThird QuarterHonolulu Metro20082007Hotel occupancy77.2%81.2%Avg. daily room rate$171.75$173.48Office vacancy10%8.2%Avg. annual rent/s.f.$26.96$26.35Retail vacancy 7%2.8%Avg. annual rent/s.f.$32.52$31.80Median single-family home price $636,000$665,000

Note: Home prices are for respective second quarters

Sources: Smith Travel Research Inc., Property & Portfolio Research, National Association of Realtors

Honolulu's hotel and other commercial real-estate sectors are heading into this downturn off a much loftier peak than many other markets around the U.S., as restrained supply has helped keep it in balance. Though weakening, Oahu's average September room rate of $160.24 still was roughly 50% higher than the national level and occupancies were well above the national rate. The area's third-quarter office vacancies were the lowest of 54 major markets surveyed by Property & Portfolio Research, a Boston real-estate research firm. Retail, apartment and warehouse vacancies also are among the top 10 lowest; however, the area's office and retail sectors have begun to see rents dip in recent months, PPR said.

Signs of the slowing times are emerging in nearly every property sector. Median home prices have begun to slip, and the area's jobless rate, not seasonally adjusted, rose to 4.2% in September from 2.7% in the year-earlier month, according to the Bureau of Labor Statistics. The September jobless rate for the U.S. was 6%.

The hotel market has weathered rough times before, most recently after the terrorist attacks in New York and Washington, D.C., of 2001 that kept visitors home. This time around, though, it feels different to some. It could prove more trying as the financial turmoil leaves hotel operators without the ability to extend loans or obtain lines of credit, techniques used in the past to gain some breathing room, said Joseph Toy, chief executive of Hospitality Advisors LLC, a Honolulu consulting firm that offers foreclosure services. "It's a far more challenging environment," Mr. Toy said.

Still, some in the Hawaii tourism sector are forging ahead to sharpen a new marketing tool: the region's appeal to Obama-philes. John Monahan, president of the Hawaii Visitors and Convention Bureau, said his organization is working to provide visitors Web-based information on the region's role in the president-elect's life and at least one commercial tour operator is planning to offer an Obama-themed tour.

Write to Maura Webber Sadovi at maura.sadovi@wsj.com

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