Hawai'i's hotel industry brought in a record $3 billion in revenue last year, benefitting from the state's reputation as a safe yet exotic destination in a time of international tension.

The previous record of $2.73 billion was set in 2004.

With modest gains in the number of customers and hotel room prices expected this year, Hawai'i hotels will likely set another record in 2006, said hotel consultancy Hospitality Advisors LLC.

Both statewide average daily room rates and revenue per available room — a critical measure of profitability — surpassed records set in 2004. Hawai'i also ranked second among the top 25 U.S. hotel markets behind New York City for average daily rates, revenue per room and occupancy.

"2005 was a great year," said Stan Brown, Marriott International's vice president for Pacific islands and Japan. "We should certainly celebrate that. There were a lot of successes in the industry as a whole. ... It was certainly great for employment, great for business, great rebound."

"The start of 2006 looks better than the first quarter of 2005, so that's very encouraging as well," Brown added.

The statistics came a day after the state reported a record 7.46 million visited Hawai'i last year and spent a record $11.5 billion. Visitor arrivals are projected to top 7.6 million this year.

The hotel industry's gains last year were largely driven by strong growth in higher-spending markets such as business travelers, honeymooners and visitors from the U.S. East, said Hospitality Advisors President Joseph Toy.

The hotel industry also set a December record in average daily rates and revenue per available room of $189.98 and $145.36, respectively. December occupancy grew 5.4 percentage points year-over-year to 76.5 percent.

Toy also said Hawai'i is one of the top investment targets for the hotel industry. "The investment returns on hotel properties nationally and in Hawai'i in particular are high," he said.

Over the past three years there were 25 hotel property transactions totaling more than $3.1 billion, Toy said. There are also at least seven properties in various stages of the process, with transactions totaling about $700 million, he said.

"What that shows is even though the condo market might be nearing its peak, hotel properties are still in very high demand here because of the lack of any new additions in the pipeline," he said. "And the markets are flush with cash."

Toy said there will still be hotel conversions to condominiums and time-shares, but at a more moderate pace. "We're going to see more new builds (of condominiums and time-shares) ... as opposed to conversions," he said.

There was a 1.9 percent increase in room nights sold last year and a 2.6 percent decline in room supply due to temporary renovation closures and conversions to time-shares and condominiums. That helped drive statewide average daily rates to $166.86. Revenue per available room was $135.50, and moderate growth in demand and smaller hotel room supply pushed statewide occupancy up 3.5 percentage points to 81.2 percent.

The survey, compiled by Smith Travel Research with Hospitality Advisors, averages more than 141 properties representing about 48,222 rooms, or 79.5 percent of all lodging properties with 20 rooms or more in the state, including full service, limited service and condominium hotels.

Reach Lynda Arakawa at larakawa@honoluluadvertiser.com.