Apartment Owners Face Margin Squeeze as Rent Growth Slows and Expenses Soar

For years, apartment owners relied on rent growth to offset rising expenses, but that strategy is no longer viable. Rent increases have slowed to 1% to 2% annually, while insurance costs have surged 55% per unit between 2021 and 2024, and utility costs continue to climb. This margin squeeze is drastically reducing net operating income (NOI) and, consequently, property values. Bill Douglas, CEO of OpticWise and co-author of Peak Property Performance®, identifies this as the top concern among owners at industry trade shows. He explains that post-pandemic, low interest rates and strong demand allowed owners to underwrite deals with 3% to 6% annual rent growth, but the supply-demand equation has shifted with more apartments coming online and softened demand. Tenants still seek quality, but the market is only tolerating modest rent increases.

Many owners hoped technology would solve the problem, but Douglas notes that PropTech and AI have not closed the gap. While interest in AI is high, owners are not seeing tangible results because they are paying for AI features within individual vendor software rather than applying AI across their own data. Without their own data, owners cannot identify or solve underlying issues. Douglas recommends focusing on three areas that directly impact NOI: utilities, insurance, and occupancy. OpticWise’s property intelligence benchmarks a property against these areas and provides asset managers with specific actions to improve each one. For insurance, this means reviewing coverage and preparing the property before renewal. The order of improvements matters, as income-generating actions can fund subsequent rounds, avoiding the need for large capital outlays. Douglas emphasizes that this is a long-term strategy requiring owners to have their own data over time, but it does not have to be expensive.

Rent growth may eventually pick up, but owners who wait risk leaving NOI to the market. The expense side is where they have room to act, and the first step is understanding what is driving costs at each property. Bill Douglas is CEO of OpticWise and co-author of Peak Property Performance®. With over three decades of experience, he uses technology to solve complex business problems and also coaches executives and entrepreneurs, men over 45, on body, business, and being a ResilienceGuy.