Hotel investors using mainland-based pro forma models for Hawaii properties may be underestimating operating expenses by 15 to 25 percent by the second year of ownership, according to Mike Perkins of The Bratton Team at Colliers International Hawaii. The discrepancy stems from fundamental differences in how expense lines behave in the islands compared to the continental United States.
“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 diverge include labor, insurance, shipping, and deferred capital. While a mainland pro forma typically applies a three percent annual increase across operating expenses, several Hawaii expense categories escalate at closer to six or seven percent—a gap that compounds significantly over a hold period.
Shipping costs exemplify the challenge. Inter-island shipping recently saw a cost increase of around 26 percent, yet carriers continued operating at a loss even after the increase took effect, indicating that underlying cost structure—not pricing opportunism—drives the numbers. Hawaii imports well over 90 percent of what it consumes, adding a freight component to food and beverage costs that mainland comparables lack. Items that take six weeks to arrive on the mainland commonly take 10 to 14 weeks in Hawaii.
Labor, the largest single component of hotel operating expense, is shaped by two factors. First, the union framework affects both cost and flexibility. Union hotels work from a base of roughly $30 an hour, with further increases anticipated. Staffing cannot be flexed down through soft periods, changing how seasonal variation flows to margin. However, Perkins noted the framework is more negotiable than buyers often assume. One client’s entitlement approvals required union construction and union hotel operations, while restaurants within the property remained outside that scope. Second, experienced hospitality staff are scarce, especially on the Neighbor Islands, so quality carries a premium.
On the development side, the entitlement process runs long enough to belong in the financial model rather than just the project schedule. A pro forma assuming a mainland approval timeline understates carry costs and pushes stabilization earlier than realistic.
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 can look comparable to a mainland asset while the expense ratio tells a materially different story. Owners tracking monthly 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 does argue 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 developers to re-source across countries, and those with existing relationships have adapted faster. Operating efficiencies developed during the pandemic—such as housekeeping on request and technology deployed to reduce operating costs—have proved durable. The market is also showing a K-shaped pattern: luxury properties have absorbed cost increases through rate, while mid and lower tiers compete harder and innovate faster.
Perkins’s advice for anyone building a first Hawaii hotel model is direct: 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 that few markets can. For more information on Hawaii commercial real estate, visit The Bratton Team.
