Multifamily rental property expenses continue to grow at above-trend levels, led by insurance increases, according to a special bulletin by Yardi Matrix.
The report cautions that rental property owners should not expect even robust income growth to outstrip the rapid increase in expense growth.
Property insurance alone was up by more than 27%, Yardi Matrix says in the study.
Using an examination of more than 20,000 properties that use Yardi operating software, Yardi says overall multifamily expenses rose 7.1% year-over-year to an average of $8,950 as of January. Here is how the expenses broke down in the study:
- 7% insurance
- 3% marketing
- 6% administrative
- 8% repairs and maintenance
“Driven by inflationary pressures, total expenses at multifamily properties have increased rapidly in the past two years, peaking at 8.7% in 2022. Before that, the average annual expense growth rates were 4.9% in 2021, 1.6% in 2020, 3.6% in 2019 and 3.8% in 2018,” the report says.
Multifamily property insurance costs driving expense issues
The most recent 27.7% jump in property insurance is only the latest hit for multifamily expenses.
Property insurance costs have risen 129% nationally since 2018, to an average of $636 per unit. Property insurance premium growth rates were 16.0% in 2022, 15.1% in 2021, 16.7% in 2020, 13.4% in 2019 and 5.6% in 2018, the report says.
Weather-related insurance events in the Southeast have been a major driver of the property-insurance increases.
“Although property insurance is only 7% of total expenses, its share of overall costs is growing. Plus, it is becoming more difficult to obtain in areas with severe hurricanes, floods and fires,” said Paul Fiorilla, director of research, in the report.
Rental income growth is also now slowing, while multifamily expenses grow. One of the areas is the Individual inflation components.
“Service inflation is still high, a sign that the labor market continues to be tight, which feeds into high administrative and payroll costs for apartments.
“Likewise, supply chains have repaired to a great degree from the height of the pandemic, but repair and maintenance costs are stubbornly high due to increasing costs of labor and materials that are impacted by forces including energy and delays in global shipping lanes,” Fiorilla said.
Summary
Streamlining processes plus implementing new technology can help, however, “the upshot is that property owners can’t expect robust income growth to continue to outstrip rapid growth in expenses.
“Profitability will be at risk if expense increases do not moderate during a period when rent growth is forecast to remain weak,” Fiorilla says.
Read the full report here.
About Yardi Matrix
Yardi Matrix researches and reports on multifamily, office and self-storage properties across the United States, serving the needs of a variety of industry professionals. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering more than 90 percent of the U.S. population. Contact the company at (480) 663-1149.
