Rising interest rates and slower rent growth have captured much of the attention in multifamily housing, but industry analysts warn that another force is quietly reshaping property performance: operating expenses. Once a secondary concern, operating costs have become what Trepp describes as “a fundamental driver of multifamily loan performance and valuation.”
The shift reflects how inflation has seeped into nearly every line item of property management. Trepp data shows that operating costs in some metros have been growing at annual rates as high as 7%—well above the traditional underwriting norm of 3% to 5%. Certain expense categories have surged at double-digit rates. Property insurance, in particular, has climbed an average of 11.77% a year, driven by escalating risks tied to climate change and severe storm activity. Those increases outpace not only headline inflation but also the rapid jumps tracked in the Producer Price Index.
Across commercial real estate as a whole, operating expenses grew at a compound annual growth rate of 4.15% between 2015 and 2024, Trepp reported. But in the nation’s largest markets, the pace was strikingly higher: 6% annually across the top 10 metropolitan areas, 5.30% across the top 25, and 3.66% across the top 50.
