Hotel acquisition models built for mainland U.S. markets often rely on assumptions that do not hold in Hawaii, and failing to adjust them can lead to significant underwriting errors. According to Mike Perkins of The Bratton Team at Colliers International Hawaii, the most consequential difference is how expense lines escalate over time. A mainland pro forma typically 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 affected categories—labor, insurance, shipping, and deferred capital—compound quickly, creating a 15 to 25 percent gap between projected and actual performance by year two.
Shipping costs exemplify the challenge. Inter-island shipping recently saw a cost increase of around 26 percent, yet carriers remained unprofitable even after the hike, signaling structural cost pressures rather than opportunistic pricing. Hawaii imports over 90 percent of its consumed goods, so food and beverage costs carry a freight component absent from mainland comparables. Moreover, items that take six weeks to arrive on the mainland commonly take 10 to 14 weeks in Hawaii, extending lead times and tying up capital.
Labor is the largest operating expense, and Hawaii’s union framework adds both cost and rigidity. Union hotels operate from a base of roughly $30 per hour with further increases anticipated, and staffing cannot be easily flexed down during slow periods. However, Perkins notes that terms are negotiable deal by deal: one client secured entitlement approvals requiring union construction and hotel operations while keeping restaurants outside that scope. Scarcity of experienced hospitality staff, especially on the Neighbor Islands, further drives up quality premiums.
The entitlement process also runs longer than on the mainland, meaning carry costs must be built into the financial model rather than treated as a scheduling matter. For buyers evaluating development opportunities, entitlement position can be as material to value as physical condition. When reviewing Hawaii hotel numbers, Perkins focuses first on average daily rate, revenue per available room, and expenses as a percentage of RevPAR. The third metric reveals the Hawaii premium: rate and occupancy may look comparable to a mainland asset, but the expense ratio tells a different story. Owners tracking Hawaii market statistics have a reference point for these figures.
Despite these challenges, the premium can be managed. 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 re-sourcing across countries, and those with existing relationships have adapted faster. Pandemic-era operating efficiencies, such as housekeeping on request and technology deployment, have proven durable. The market also shows a K-shaped pattern: luxury properties have absorbed cost increases through rate, while mid and lower tiers compete harder and innovate faster. Perkins advises building a realistic model with a premium over mainland comparables. “Don’t be too aggressive, be realistic, and apply a premium,” he says. Buyers who start from that position find Hawaii’s market more predictable than its reputation suggests, and the state has historically recaptured cost increases through rates in a way few markets can.
