Hotel acquisition models built for mainland U.S. markets often rely on assumptions that do not hold in Hawaii, and the consequences for buyers can be substantial. According to Mike Perkins of The Bratton Team at Colliers International Hawaii, the most critical difference lies in how expense lines escalate over time. While a typical mainland pro forma applies a three percent annual increase across operating expenses, several lines in Hawaii 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 says. These lines include labor, insurance, shipping, and deferred capital in an environment that is harder on buildings than most.
The cumulative effect is measurable. Perkins estimates that by year two, the gap between a mainland-built pro forma and actual performance typically reaches fifteen to twenty-five percent. That is not a reason to underwrite conservatively for its own sake, but rather to build the premium in at the outset where it can be priced.
Shipping costs further complicate the picture. Hawaii imports well over ninety percent of what it consumes, so food and beverage cost of sales carries a freight component absent from mainland comparables. Inter-island shipping recently saw a cost increase of around twenty-six percent, yet carriers were still operating at a loss, indicating that underlying cost structure, not pricing opportunism, drives the number. Items that take six weeks to arrive on the mainland commonly take ten to fourteen weeks in Hawaii, affecting everything a hotel needs on a schedule.
Labor is the largest single component of hotel operating expense, and two features shape it in Hawaii. The first is the union framework, which affects both cost and flexibility. Union hotels work from a base of roughly thirty dollars an hour, with further increases anticipated. Operationally, staffing cannot simply be flexed down through a soft period, changing how seasonal variation flows through to margin. However, the framework is more negotiable than buyers often assume. Perkins describes a client whose entitlement approvals required union construction and union hotel operations, while restaurants within the property remained outside that scope. The second feature is scarcity. The pool of experienced hospitality staff is finite and narrows further on the Neighbor Islands, so quality carries a premium.
On the development side, the entitlement process runs long enough to belong in the financial model rather than the project schedule alone. A pro forma that assumes a mainland approval timeline understates carry costs and pushes stabilization earlier than it will realistically occur.
When reviewing Hawaii hotel numbers, Perkins looks first at average daily rate, revenue per available room, and expenses as a percentage of RevPAR. The third is where the Hawaii premium shows up. Rate and occupancy can look comparable to a mainland asset while the expense ratio tells a materially different story. Owners tracking Hawaii market statistics have a reference point for where those figures sit across the market.
None of this argues against Hawaii hotel investment. It argues for building the model correctly, and there are established ways to reduce the premium rather than simply absorb it. Planning is the largest lever. Working with locally established groups that hold supplier relationships and can source from Asia as well as the mainland compresses lead times. Tariff changes have prompted some developers to re-source across countries, and those with existing relationships have adapted faster. Operating efficiencies developed during the pandemic have proved durable, including housekeeping on request and technology deployed to reduce operating costs. The market is also showing a K-shaped pattern in which luxury properties have absorbed cost increases through rate, while the mid and lower tiers compete harder and innovate faster.
Perkins advises anyone building their first Hawaii hotel model to be realistic and apply a premium over the comparable mainland asset. Buyers who start from that position find the market considerably more predictable than its reputation suggests, and Hawaii has historically been able to recapture cost increases through rates in a way that few markets can. For more information on Hawaii commercial real estate, visit Colliers.
