Hotel investors relying on mainland pro forma templates risk mispricing Hawaii assets, according to industry experts who say the state's unique operating environment demands a different set of assumptions. The most significant divergence lies in expense escalation: while a typical mainland model applies a 3% annual increase across operating expenses, several key lines in Hawaii move at 6-7%, a difference that compounds quickly over a hold period.
"When we do a three percent annual increase on a mainland pro forma, some elements are six to seven percent here," says Mike Perkins of The Bratton Team at Colliers International Hawaii. The affected categories—labor, insurance, shipping, and deferred capital—are identifiable, not mysterious. By year two, the cumulative gap between a mainland-built pro forma and actual performance typically reaches 15-25%, according to Perkins. That is not a reason to underwrite conservatively for its own sake, but rather to build the premium in at the outset where it can be priced.
Hawaii's dependence on inbound logistics touches nearly every operating category. Inter-island shipping costs rose around 26% after jurisdictional approvals, yet carriers still operated at a loss even after the increase—a signal that underlying cost structure, not pricing opportunism, drives the number. Food is another exposure: Hawaii imports over 90% of what it consumes, so food and beverage cost of sales carries a freight component absent from mainland comparables. Items that take six weeks to arrive on the mainland commonly take 10-14 weeks in Hawaii.
Labor, the largest single 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 per hour, with further increases anticipated. Staffing cannot be flexed down through soft periods, changing 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 hotel operations, while restaurants within the property remained outside that scope. Second, the pool of experienced hospitality staff is finite and narrows further 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. A pro forma assuming 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 looks first at 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 materially 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. Planning is the largest lever for reducing the premium. Working with locally established groups that hold supplier relationships and can source from Asia as well as the mainland compresses lead times materially. Tariff changes have prompted developers to re-source across countries, and those with existing relationships have adapted faster. Pandemic-era operating efficiencies—housekeeping on request and technology to reduce operating costs—have proved durable. The market shows 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 to 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.
