Hotel acquisition 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 is how expense lines escalate over time. 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 says. The lines that behave differently include labor, insurance, shipping, and deferred capital. 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. This means buyers must build the premium in at the outset rather than underwrite conservatively after the fact.
Hawaii's dependence on inbound logistics touches nearly every operating category. Inter-island shipping costs recently rose around twenty-six percent through jurisdictional approvals, yet carriers still operated at a loss, indicating that underlying cost structure drives the number. Food is another exposure: Hawaii imports 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 any scheduled item; what takes six weeks on the mainland commonly takes ten to fourteen weeks in Hawaii.
Labor is the largest single component of hotel operating expense, and two features shape it. 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. Staffing cannot simply be flexed down during soft periods, altering how seasonal variation flows to margin. However, the framework is more negotiable than buyers assume. Perkins describes a client whose entitlement approvals required union construction and union hotel operations, while restaurants within the property remained outside that scope. 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 that assumes 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 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, but 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 some developers to re-source across countries, and those with existing relationships have adapted faster. Operating efficiencies from the pandemic, such as housekeeping on request and technology to reduce operating costs, continue to hold. 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 advises anyone building their first Hawaii hotel model: 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 few markets can. For those seeking expert guidance, Mike Perkins and The Bratton Team offer specialized knowledge in Hawaii commercial real estate.
