Hawaii Businesses Face Tourism Decline & Shifting Infrastructure Opportunities: Prepare for Margin Squeeze and New Contracts

Hawaii's economic landscape is undergoing a critical transition in 2026. Projections reveal a notable weakening in the vital tourism sector, juxtaposed with a strong surge in construction activity, predominantly driven by large-scale infrastructure projects. This duality presents immediate challenges for businesses reliant on visitor spending and significant opportunities for those prepared to engage with the burgeoning infrastructure development.

The Change: A Tale of Two Economies

The primary shift for 2026 is the divergence between consumer-facing tourism and foundational infrastructure development. While visitor arrivals and spending are trending downwards, signaling a contraction in Hawaii's traditional economic engine, government and private sector investment in infrastructure is accelerating. This includes essential upgrades to transportation networks, utilities, and public facilities, creating a robust demand for construction services, materials, and supporting industries. The safety net of consistent tourism revenue appears to be fraying, necessitating a proactive response from businesses across various sectors.

Who's Affected?

Tourism Operators (Hotels, Tour Companies, Vacation Rentals, Hospitality Businesses)

• Impact: Expect a 5-10% decrease in revenue year-over-year due to declining visitor numbers and potentially shorter stays. This will put pressure on staffing levels and operational budgets. Airlines are already seeing reduced forward bookings, a direct indicator of future visitor volume.
• Secondary Concerns: Reduced demand may lead to increased price competition, further impacting profit margins. Businesses heavily reliant on short-term rentals may face increased regulatory scrutiny if occupancy rates fall significantly.

Small Business Operators (Restaurants, Retail Shops, Service Businesses)

• Impact: Decreased foot traffic from tourists will directly affect businesses in high-visitor areas, potentially leading to a 3-7% drop in sales. Local businesses are also susceptible to reduced discretionary spending from residents if the broader economic slowdown impacts local employment.
• Secondary Concerns: Increased operating costs are a continuing concern. As tourism weakens, businesses may struggle to absorb rising costs for labor and supplies without passing them on to consumers, a difficult proposition with fewer customers.

Real Estate Owners (Property Owners, Developers, Landlords, Property Managers)

• Impact: Owners of hospitality-focused commercial properties may see a softening in rental demand and potentially lower property values in the short to medium term. Conversely, owners of industrial land and properties suitable for construction staging, material storage, or workforce housing are poised for increased demand and rental rates.
• Secondary Concerns: Developers focused on new hotel or resortCondos may face increased difficulty securing financing and pre-sales. Those pivoting to infrastructure-related support services or housing for construction workers will find a more favorable market.

Entrepreneurs & Startups

• Impact: Startups in the tourism and hospitality tech sectors will face significant challenges in securing funding and scaling. Those focusing on construction technology (ConTech), supply chain logistics for infrastructure projects, or sustainable materials will find a more receptive venture capital and grant landscape.
• Secondary Concerns: The ability to attract and retain talent will become more complex. Demand for skilled labor in construction will rise, potentially drawing talent away from other sectors, while a weakening tourism industry might lead to layoffs, creating a localized 'displaced worker' pool but possibly with skills misaligned to infrastructure needs.

Investors (VCs, Angel Investors, Portfolio Managers, Real Estate Investors)

• Impact: A strategic reallocation of capital is advised. Investments in tourism-dependent businesses, airlines, and associated real estate should be reviewed for potential divestment or reduced exposure. Conversely, infrastructure funds, construction companies, engineering firms, and suppliers of construction materials represent high-growth opportunities.
• Secondary Concerns: Market volatility is expected. Investors should monitor interest rate movements and government spending announcements closely. Diversification across sectors will be key to mitigating risk in this bifurcated economic environment.

Second-Order Effects

The decline in tourism, a traditionally high-employment sector with significant foreign exchange earnings, could lead to reduced consumer spending power among residents. This could exacerbate the impact on small businesses. Furthermore, increased demand for labor and materials in infrastructure projects, coupled with potential supply chain disruptions (exacerbated by global shipping challenges), may drive up construction costs. This increased cost could spill over into the broader economy, affecting everything from housing prices to the cost of goods and services as businesses pass on heightened operational expenses. A shortage of skilled construction labor could also lead to wage inflation in that sector, potentially increasing costs for both public and private infrastructure projects hired through Hawaii Department of Transportation or county agencies.

What to Do

Tourism Operators

• Action: Immediately conduct a thorough review of operating expenses. Identify non-essential costs that can be cut or reduced. Explore opportunities to diversify revenue streams, perhaps by attracting more local clientele, offering packages for inter-island visitors, or developing new experiences that appeal beyond the typical tourist profile. Customer loyalty programs should be enhanced to retain existing visitor segments. Consider targeted marketing campaigns to niche markets less affected by broad economic shifts.
• Timeline: Begin cost-cutting measures within 30 days. Develop new revenue strategies within 90 days.

Small Business Operators

• Action: For businesses in tourist-heavy areas, develop strategies to capture more local market share. This could involve loyalty programs for residents, community event partnerships, or adapting product/service offerings to local tastes. For all small businesses, re-evaluate supply chain resilience; explore local sourcing options where feasible to mitigate global shipping risks and costs. Investigate opportunities to supply goods or services to larger infrastructure projects, even indirectly.
• Timeline: Implement local market strategies within 60 days. Assess supply chain vulnerability and initiate diversification within 90 days.

Real Estate Owners

• Action: Owners of hospitality-related properties should prepare for potential vacancies or rent reductions by exploring conversion opportunities (e.g., residential, co-living) if zoning permits. For industrial or commercial property owners, actively market to businesses involved in or supporting infrastructure development. Engage with developers and contractors early regarding potential needs for staging areas, warehousing, or offices near project sites.
• Timeline: Evaluate property conversion feasibility within 90 days. Proactively market to infrastructure-related entities immediately.

Entrepreneurs & Startups

• Action: Pivot business plans and funding pitches away from exclusively tourism-dependent models. Focus on developing solutions for the construction and infrastructure sectors, such as project management software, specialized equipment rentals, or sustainable building material innovations. Explore grants and funding opportunities from agencies like the U.S. Department of Transportation or state-level infrastructure initiatives.
• Timeline: Revise business plans and investor outreach strategies within 45 days. Target relevant grant applications within 90 days.

Investors

• Action: Conduct immediate due diligence on existing portfolios. Reduce exposure to hospitality and tourism-centric assets where feasible, especially those with high leverage or weak balance sheets. Increase allocation to companies directly involved in infrastructure development, construction, engineering, and the supply chains supporting these sectors. Monitor the financial health of state and county governments for their capacity to fund projected infrastructure spending.
• Timeline: Review and adjust portfolio allocations within the next 60 days. Identify specific infrastructure investment opportunities within 90 days.