Hotel acquisition models built for mainland U.S. markets often fail in Hawaii because they rely on assumptions that do not hold in the islands. According to Mike Perkins of The Bratton Team at Colliers International Hawaii, expense lines in Hawaii escalate at six to seven percent annually, compared to the typical three percent on the mainland. This divergence compounds over a hold period, leading to a 15 to 25 percent gap between mainland-built pro formas and actual performance by year two. "When we do a three percent annual increase on a mainland pro forma, some elements are six to seven percent here," Perkins said. The lines that behave differently include labor, insurance, shipping, and deferred capital.
Shipping costs are a major factor. Inter-island shipping recently saw a 26 percent increase, and carriers still operated at a loss, indicating underlying cost pressures. Hawaii imports over 90 percent of its consumables, so food and beverage costs include a freight component absent from mainland comparables. Items that take six weeks to arrive on the mainland commonly take 10 to 14 weeks in Hawaii. These logistical challenges affect nearly every operating category.
Labor is the largest single operating expense, and Hawaii's union framework shapes both cost and flexibility. Union hotels pay a base of roughly $30 per hour, with further increases anticipated. Staffing cannot be easily reduced during slow periods, altering how seasonal variation impacts margins. However, the framework is negotiable; Perkins cited a client whose entitlement approvals required union construction and hotel operations, while restaurants remained non-union. Scarcity of experienced hospitality staff, especially on the Neighbor Islands, adds a premium for quality hires.
On the development side, the entitlement process is lengthy and must be integrated into financial models. Assuming a mainland approval timeline understates carry costs and pushes stabilization earlier than realistic. For buyers, 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 expense ratio reveals whether a model uses local inputs or imported assumptions. Owners tracking Hawaii market statistics can benchmark these figures.
Despite these challenges, Hawaii hotel investment can succeed with proper modeling. Planning is key: working with locally established groups, leveraging supplier relationships, and sourcing from Asia as well as the mainland can compress lead times. Tariff changes have prompted some developers to re-source across countries, and those with existing relationships adapt faster. Pandemic-era operating efficiencies, such as housekeeping on request and technology to reduce costs, have proven durable. The market shows a K-shaped pattern where luxury properties absorb cost increases through rate, while mid and lower tiers innovate more aggressively.
Perkins advises building a realistic model with a premium over mainland comparables. Buyers who do so find the market more predictable than its reputation suggests. Hawaii has historically recaptured cost increases through rates, a feat few markets can match. For more information on Hawaii commercial real estate, visit Colliers International.
