Hotel acquisition models built for mainland U.S. markets often rely on assumptions that do not hold in Hawaii, and buyers who fail to adjust may misprice assets. According to Mike Perkins of The Bratton Team at Colliers International Hawaii, the most critical difference is how expense lines escalate. A typical mainland pro forma applies a three percent annual increase across operating expenses, but in Hawaii several lines move at six to seven percent. "When we do a three percent annual increase on a mainland pro forma, some elements are six to seven percent here," Perkins said. Labor, insurance, shipping, and deferred capital are the primary drivers. The cumulative effect is significant: Perkins estimates a 15 to 25 percent gap between a mainland-built pro forma and actual performance by year two. This means buyers must build the premium in at the outset to avoid overpaying.
Shipping costs further complicate Hawaii hotel operations. Inter-island shipping recently saw a cost increase of about 26 percent, yet carriers still operated at a loss, indicating structural cost pressures. Hawaii imports over 90 percent of its consumables, so food and beverage costs include freight components absent from mainland comparables. Items that arrive in six weeks on the mainland can take 10 to 14 weeks in Hawaii, affecting supply chain planning and carrying costs.
Labor is the largest operating expense, and Hawaii's union framework adds both cost and rigidity. Union hotels pay a base of roughly $30 per hour with further increases expected, and staffing cannot be easily flexed during slow periods, altering seasonal margin flows. However, Perkins notes the framework is negotiable on a deal-by-deal basis; one client secured union construction and hotel operations while keeping restaurants non-union. Scarcity of experienced hospitality staff, especially on the Neighbor Islands, commands a premium.
On the development side, entitlement timelines are long enough to materially affect financial models. A pro forma assuming mainland approval timelines understates carry costs and overestimates stabilization speed. For buyers evaluating Hawaii commercial real estate, entitlement position is often as important as physical condition.
When reviewing Hawaii hotel numbers, Perkins first examines average daily rate, revenue per available room (RevPAR), and expenses as a percentage of RevPAR. The expense ratio reveals the Hawaii premium: rate and occupancy may look comparable to a mainland asset, but the expense ratio tells a different story. Owners tracking Hawaii market statistics have a reference point.
Despite these challenges, Perkins advises against avoiding Hawaii hotel investment. Instead, he recommends building the model correctly and reducing the premium through planning. Working with locally established groups that have supplier relationships and can source from Asia compresses lead times. Tariff changes have prompted re-sourcing across countries, and those with existing relationships adapt faster. Pandemic-era operating efficiencies, such as housekeeping on request and technology to reduce costs, remain durable. The market shows a K-shaped pattern: luxury properties absorb cost increases through rate, while mid and lower tiers compete harder and innovate faster.
Perkins's advice to first-time Hawaii hotel modelers: don't be too aggressive, be realistic, and apply a premium over the comparable mainland asset. Buyers who start from that position find the market more predictable than its reputation suggests, and Hawaii has historically recaptured cost increases through rates in a way few markets can.
