Hotel acquisition models built for mainland U.S. markets often fail to account for Hawaii's unique operating environment, according to Mike Perkins of The Bratton Team at Colliers International Hawaii. In a recent interview, Perkins explained that expense lines in Hawaii escalate at six to seven percent annually, compared to the three percent typical on the mainland. This divergence compounds over a hold period, creating a 15-25% gap between mainland-built pro formas and actual performance by year two.
The difference stems from Hawaii's isolation and dependence on shipping. Inter-island shipping costs recently rose about 26%, and carriers still operated at a loss, indicating structural cost pressures. Hawaii imports over 90% of its consumables, adding freight components to food and beverage costs that mainland comparables lack. Items that take six weeks to arrive on the mainland commonly take 10-14 weeks in Hawaii.
Labor is another critical factor. Union hotels operate from a base of roughly $30 per hour, with further increases anticipated. The union framework limits staffing flexibility, making it harder to adjust during seasonal downturns. However, Perkins notes that union terms are negotiable deal by deal; one client secured approvals requiring union construction and hotel operations while keeping restaurants outside that scope. Scarcity of experienced hospitality staff, especially on Neighbor Islands, adds a premium for quality.
Entitlement timelines also differ. Perkins advises that the entitlement process runs long enough to be modeled as a financial cost, not just a scheduling matter. A pro forma assuming mainland approval timelines will understate carry costs and push stabilization earlier than realistic.
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 is where the Hawaii premium emerges, often revealing whether a model used local or imported inputs. Owners can track monthly Hawaii market statistics for reference.
Perkins suggests that buyers can manage the premium through planning. Working with locally established groups that have 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 adapt faster. Operating efficiencies from the pandemic, such as housekeeping on request and technology to reduce costs, have proven durable. The market shows a K-shaped pattern: luxury properties absorb cost increases through rate, while mid and lower tiers compete harder and innovate faster.
For first-time Hawaii hotel modelers, Perkins advises: don't be too aggressive, be realistic, and apply a premium over comparable mainland assets. Buyers who start from that position find the market more predictable than its reputation suggests. Hawaii has historically recaptured cost increases through rates in a way few markets can.
This news matters to investors and developers evaluating Hawaii hotel assets. Understanding these nuances can prevent overpaying or underestimating costs, leading to more accurate valuations and sustainable returns. As remote work and travel trends evolve, Hawaii's unique cost structure will remain a key consideration for hospitality investment.
