Apartment Expenses are in Check But Watch for This One Metric
Turnover has been depressed since the pandemic.
As apartment owners deal with rising interest rates and slowing rents they have still managed to keep their expenses in check, according to an analysis of quarterly earnings by Green Street analyst Alan Peterson. There was an average of 5.5% expense growth in the first quarter, per most apartment companies’ guidance, following a 5% increase last year.
This steady state for expenses, though, could be upended or at least destabilized if turnover, which has been depressed since the pandemic, begins to creep up, Peterson says.
“For most renters, it has been cheaper to stay in place even with rent increases.”
The result has been a lot of deferred maintenance within many portfolios, according to Peterson, that will come due if tenants begin to give back their keys and landlords must get the units ready for new tenants.
When and how much turnover there will be remains an open question, though. Currently turnover remains lower than the pre-Covid years but an even incremental increase could drive maintenance expenses higher as the year continues, Peterson says.
“We could see high single digit, low double digit maintenance expense numbers and some pressure on the expense side for some apartment landlords,” he says.