Navigating the Escalation of Multifamily Operational Costs
As we enter the fourth quarter of 2023, property managers, asset managers, multifamily owners and operators, and real estate investors find themselves grappling with a significant challenge: the continuous rise in operational costs for multifamily assets.
According to a recent report by Marcus & Millichap, operational costs for apartment companies saw an average year-over-year increase of 8.6% in the second quarter of this year. This surge is not without consequences, as it’s causing higher debt costs and a parallel increase in insurance prices, with a staggering 33% rise in insurance costs per apartment unit year over year.
Understanding the Current Industry Trends
The 8.6% year-over-year increase in operational costs is a cause for concern among multifamily property stakeholders. This surge affects various facets of property management, including overhead costs, maintenance expenses, and marketing expenditures. These rising costs directly impact the bottom-line profitability of multifamily assets, making it increasingly challenging to maintain healthy profit margins in an industry where every dollar counts. Property managers and investors must proactively address these cost escalations to safeguard the financial health of their investments and ensure long-term viability in a competitive market.
In addition, insurance prices have witnessed an alarming 33% year-over-year increase per apartment unit. This is especially challenging for property owners and operators in coastal regions and high-risk markets such as Florida, Texas, and California, where they are bracing for potential 200% increases in insurance costs.
Tips for Managing and Reducing Operational Costs
Simply decreasing vacancy rates is the no-brainer solution to this issue, but that is easier said than done. If an “easy button” existed for this, every owner and operator would already be taking advantage. And while lowering rents is the immediate solution, it can be challenging to maintain profitability.
- Consider leasing and marketing costs: Focus on optimizing your marketing and leasing processes. Examine what’s working and what’s not, and consider factors like traditional apartment leasing slowdowns in Q4 and Q1. Utilize data to understand the workflows of both prospective renters and onsite teams.
- Maintenance and Capital Improvements: Evaluate your building’s condition. Addressing minor issues promptly can save significant costs in the long run. Adopt a preventative maintenance strategy to tackle problems before they become significant and expensive. Ensure attics and roof access areas are adequately insulated and consider solar options to reduce energy expenses.
- Leverage Technology: Efficiency is key in property management. Implement technology solutions to streamline operations. Technology can enhance operational efficiency, from managing maintenance requests and lease renewals to administrative tasks and property tours. Training your onsite teams on new technology tools can be transformative.
- Add Amenities: Expand your definition of amenities beyond physical offerings. Explore proptech solutions that improve resident experiences and make their lives easier. Resident engagement apps, financial management tools, and services that help residents streamline their lives can boost resident satisfaction and retention.
The Importance of a Proactive Approach
The multifamily industry is navigating a challenging landscape of rising operational costs. Property managers must adopt a proactive approach to manage and reduce these costs successfully.
In an environment where every dollar saved contributes to the bottom line, adapting and implementing cost-saving measures is essential for sustained profitability and success in the multifamily sector.
