Hotel acquisition and development models built for mainland U.S. markets often fail to capture the unique cost structure of Hawaii, according to Mike Perkins of The Bratton Team at Colliers International Hawaii. In a recent analysis, Perkins highlights that standard assumptions about expense growth, supply chain, and labor can lead to materially inaccurate projections, with typical gaps of 15 to 25 percent by year two.
The most consequential difference is expense escalation. While a mainland pro forma might apply a 3 percent annual increase across operating expenses, several lines in Hawaii escalate at 6 to 7 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. The compounding effect over a hold period can significantly alter investment returns.
Shipping costs are another critical factor. Hawaii imports well over 90 percent of its consumables, and inter-island shipping recently saw a cost increase of around 26 percent. Even after that increase, carriers were operating at a loss, indicating that underlying cost structures—not pricing opportunism—drive these numbers. Food and beverage costs carry a freight component absent from mainland comparables. Moreover, items that take six weeks to arrive on the mainland can take 10 to 14 weeks in Hawaii, affecting scheduling and carrying costs.
Labor, the largest operating expense, is shaped by two key features. First, the union framework affects both cost and flexibility. Union hotels work from a base of roughly $30 per hour, with further increases anticipated. Staffing cannot be easily flexed down during soft periods, which impacts seasonal margin flows. However, Perkins notes that the framework is more negotiable than buyers assume, with terms settled deal by deal. Second, the pool of experienced hospitality staff is finite, especially on the Neighbor Islands, commanding a quality 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 focuses on 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, but the expense ratio tells a 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; rather, 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—such as housekeeping on request and technology to reduce costs—have proved durable. The market is also showing a K-shaped pattern: luxury properties have absorbed cost increases through rate, while 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 more predictable than its reputation suggests—and Hawaii has historically been able to recapture cost increases through rates in a way few markets can.
