Hotel acquisition models built on mainland assumptions often underestimate the unique cost structure of Hawaii's hospitality market, leading to significant financial discrepancies that can undermine investment returns. According to Mike Perkins of The Bratton Team at Colliers International Hawaii, the most critical adjustment involves expense escalation rates. While a typical mainland pro forma applies a 3% annual increase to operating expenses, several lines in Hawaii escalate at 6-7%, a divergence that compounds over a hold period and can result in a 15-25% gap between projected and actual performance by year two. This is not merely a reason for conservative underwriting but a necessity to build the premium into the initial pricing.
Shipping and logistics add another layer of complexity. Hawaii's reliance on inbound logistics affects nearly every operating category, even those not typically considered supply-chain sensitive. Inter-island shipping costs recently rose by around 26%, and carriers continued operating at a loss, indicating structural cost pressures rather than opportunistic pricing. Food and beverage costs are particularly exposed, as Hawaii imports over 90% of its consumables, embedding a freight component absent from mainland comparables. Moreover, items that take six weeks to arrive on the mainland often require 10-14 weeks in Hawaii, further straining schedules and budgets.
Labor, the largest operating expense, is shaped by two factors: a union framework and scarcity of experienced staff. Union hotels operate from a base of roughly $30 per hour with anticipated increases, and the framework limits operational flexibility, preventing staffing from being easily adjusted during slow periods. However, Perkins notes that terms are negotiable on a deal-by-deal basis, as seen in a client's entitlement approvals that required union construction and hotel operations while exempting restaurants. On the Neighbor Islands, the scarcity of skilled hospitality workers drives up quality premiums.
On the development side, Hawaii's lengthy entitlement process must be integrated into financial models, not just project schedules. Assuming a mainland approval timeline understates carry costs and accelerates stabilization assumptions unrealistically. For buyers, the entitlement position of an asset can be as material to value as its physical condition.
When evaluating Hawaii hotel numbers, Perkins prioritizes average daily rate, revenue per available room (RevPAR), and expenses as a percentage of RevPAR. The last metric reveals the Hawaii premium: rate and occupancy may appear comparable to mainland assets, but the expense ratio often tells a different story. Owners can track monthly Hawaii market statistics to benchmark performance.
Despite these challenges, Hawaii hotel investment remains viable with proper modeling. Planning is the largest lever for reducing the premium, particularly by partnering with locally established groups that have supplier relationships and can source from Asia as well as the mainland, thereby compressing lead times. Tariff changes have prompted some developers to re-source across countries, with those having existing relationships adapting faster. Pandemic-era operating efficiencies, such as housekeeping on request and technology-driven cost reductions, have proven durable. The market also shows a K-shaped recovery, with luxury properties absorbing cost increases through rate while mid and lower tiers innovate more aggressively.
Perkins advises first-time Hawaii hotel modelers to be realistic, avoid aggressiveness, and apply a premium over mainland comparables. Buyers who adopt this approach find the market more predictable than its reputation suggests, and Hawaii has historically recaptured cost increases through rates in ways few markets can.
