Apartment Expenses Grow as Insurance Premiums Spike
YoY profitability for January 2024 shows gross income rose more than expenses – but that could be short lived.
Although property insurance is only 7% of total expenses, it continues to take a whack at apartment operations with its share of overall costs is growing.
Insurance costs spiked most in the Southeast and other areas that suffered from weather-related damage. Obtaining insurance in areas with severe hurricanes, floods, and fires is becoming more difficult.
Property insurance costs per unit rose an average of 27.7% in the year ending January 2024 and have risen 129% nationally since 2018 to an average of $636 per unit, according to a recent survey by Yardi Matrix based on more than 20,000 properties using its software.
As a partial counter to that, profitability at multifamily properties in the period studied was up in the 12 months ending January 2024 because gross income rose more than expenses. Nationally, the average annual gross income per unit increased by $1,056, while expenses rose by $593, translating into a $463 increase in net operating income (NOI).
The Matrix report, however, cautions that income growth is likely to be weak in the next 12 to 24 months. Year-over-year growth in multifamily asking rents on vacant units slid to 0.6% nationally as of February, according to the report. And Matrix forecasts asking rents will increase by only 1.8% during 2024 with renewal rent growth continuing to decelerate.
“Much of the growth in income in 2023 came from higher rents on tenants renewing their leases, which lagged the growth in asking rents on new leases in recent years,” according to the report. “Average national renewal rent growth fell to 4.6% in January 2024 after starting the previous year near 10%.”
Overall expenses per multifamily unit nationally rose by 7.1% year-over-year to $8,950 as of January 2024, including marketing (up 12.3%); administrative (9.6%); repairs and maintenance (8.8%), and insurance.
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