Multifamily Expenses See Aggressive Increase Amidst Sluggish Rents

April 19, 2024

Multifamily Operators Face Rising Expenses Amid Plateauing Rents

While multifamily rents across the nation barely inched up over the last year, increasing just 0.9% as of March year-over-year, expenses saw a big jump, up 7.1%, led by rising insurance costs, according to reports from Yardi.

The slight bump in rents translates to an $8 monthly improvement, while the rise in expenses per unit averages $593, based on data from January 2023 to January 2024. Overall, this brings the average expenses per unit to $8,950. The numbers are based on over 20,000 properties using Yardi operating software across 129 markets.  Among the markets studied, 28 experienced a 10% jump or more in expenses.

Before 2022, expenses were rising at a much slower pace, averaging just 4.9% in 2021 and up 1.6% in 2020 and 3.6% in 2019.

Among expenses, insurance saw the biggest annual spike at 27.7%, followed by marketing (12.3%), administration (9.6%) and repairs and maintenance (8.8%). The lightest increase went to management, up just 3.2%. Among the expense categories, insurance represents just 7% of total expenses on a national basis.

Prior to the spike in 2024, annual insurance costs were only up by 5.6% in 2018 but began to see double-digit increases in 2019 (up 13.4%), followed by 16.7% in 2020, 15.1% in 2021, and 16% in 2022.

By region, the Southeast led with the biggest overall increase in expenses at 8.8%, followed by the West (7.3%). The Northeast had the lowest increase at 4.6%, while the Southwest stayed below the national average at 6%.

The Southeast was also No. 1 for the biggest jump in insurance premiums, where costs rose 35.7%, followed by a 29% increase in the Southwest. The Northeast was again at the bottom with a 21.2% increase.

On a more granular level, the markets hit with the biggest increases in expenses were Spokane, WA (18.9%); Tallahassee, FL (18.8%); Lafayette, LA (18.1%); Portland, ME (14.7%); and Pensacola, FL. (14%).

However, the markets with lower expense increases were also markets that had the highest expenses overall. For example, Manhattan has an annual expense per unit of $20,170, compared to the national average of $8,950, but expenses only rose 4.6%, well below the national average.

Not surprisingly, many of the markets with the biggest jump in insurance premiums were in Florida. Tallahassee insurance surged 131.9%, followed by Mobile, AL ( 80.6%), Pensacola (73.5%), and the Southwest Florida Coast (69%).

Three markets saw a decline in insurance costs, with Fort Wayne, IN seeing a 2.5% percent decrease, followed by White Plains, NY (-1.5%) and Little Rock (-1.4%). Anchorage and Oklahoma had minimal respective increases of 0.8% and 0.3%.



Author: Esther Cho