Hotel acquisition and development models built for mainland U.S. markets often rely on assumptions that do not hold in Hawaii. According to Mike Perkins of The Bratton Team at Colliers International Hawaii, the most consequential difference lies in how expense lines escalate over time. While a mainland pro forma typically applies a three percent annual increase across operating expenses, several lines in Hawaii move at closer to six or 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. Labor, insurance, shipping, and deferred capital are the primary drivers. The cumulative effect is significant: Perkins estimates the gap between a mainland-built pro forma and actual performance reaches fifteen to twenty-five percent by year two. For investors, this means building the premium in at the outset, where it can be priced into the deal, rather than underwriting conservatively for its own sake.
Hawaii’s dependence on inbound logistics touches nearly every operating category. Inter-island shipping recently saw a cost increase of around twenty-six percent, yet carriers were still operating at a loss even after it took effect—a signal that underlying cost structure, not pricing opportunism, drives the number. Food is another exposure: 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. The same dynamic extends to scheduled items; an item that takes six weeks to arrive on the mainland commonly takes ten to fourteen weeks in Hawaii.
Labor is the largest single component of hotel operating expense, shaped by two features. First, the union framework affects both cost and flexibility. Union hotels work from a base of roughly thirty dollars an hour, with further increases anticipated. Operationally, staffing cannot be flexed down through soft periods, changing how seasonal variation flows 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. Terms are settled deal by deal. Second, scarcity of experienced hospitality staff, especially on the Neighbor Islands, means quality carries a premium.
On the development side, the entitlement process runs long enough to belong in the financial model. A pro forma assuming a mainland approval timeline understates carry costs and pushes stabilization earlier than realistic. For buyers evaluating development and income-producing opportunities, the entitlement position of an asset is often as material to value as its physical condition.
When reviewing Hawaii hotel numbers, Perkins first examines 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 monthly 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. 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 developers to re-source across countries, and those with existing relationships have adapted faster. Operating efficiencies developed during the pandemic—housekeeping on request and technology to reduce operating costs—have proved durable. The market is showing a K-shaped pattern in which luxury properties have absorbed cost increases through rate, while mid and lower tiers compete harder and innovate faster.
Perkins’s advice to anyone building their first Hawaii hotel model is direct: 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 been able to recapture cost increases through rates in a way that few markets can.
