For much of the past five years, apartment owners could rely on rent growth to absorb rising expenses. That math no longer holds. Rent increases have slowed, insurance and utility costs have kept climbing, and the difference is coming straight out of net operating income (NOI). Bill Douglas, CEO of OpticWise and co-author of Peak Property Performance®, says it was the number one conversation at the industry trade shows he attended this year. He sums up what he heard from owners in a few words: “My expenses went up, I can’t increase the price. So therefore, I have a margin squeeze.”
Coming out of the pandemic, interest rates were still low and demand for apartments was strong. Owners underwrote deals expecting rent to rise 3% to 6% a year, and for a while the market supported it. “You were banking on the appreciation of rent,” Douglas says. “Basically, it’s a supply demand equation.” That equation has shifted. More apartments have come online, and demand has softened. Tenants still want quality, Douglas says, but the market is only tolerating rent increases of 1% to 2% this year.
Operating costs have moved on a different track. Douglas says owners have seen insurance costs rise about 55% per unit between 2021 and 2024. When insurance and utilities grow by double digits and rent grows by 1% or 2%, the difference shows up in NOI. Because property values are tied to NOI, a narrower margin also affects what a building is worth at sale or refinance. Douglas calls it “an operating conundrum.” Owners have limited control over what the market will pay in rent. What they can influence is how efficiently the property runs.
Many owners expected technology to solve this. “Everybody thought PropTech would do it five years ago, and it didn’t. Everybody thought AI would do it,” Douglas says. Interest in AI is high, but owners are starting to ask for results. “It’s fun and it’s interesting and everybody’s talking about it, but show me the money, and I’m not seeing the money yet.” The reason, in his view, is where the AI sits. Owners are often paying for AI features inside each vendor’s software, but they are not applying AI across their own data, because they do not have their own data to work with. “They can’t really solve a problem that they don’t know they have yet,” he says. “They’re only looking at results, and the results are increased expenses.”
Douglas recommends starting with three areas that tie directly to NOI: utilities, insurance, and occupancy. OpticWise’s property intelligence work benchmarks a property against those three areas and gives the asset manager specific plays, or actions, to improve each one. For insurance, that means reviewing coverage and preparing the property before renewal. The order matters. Improvements that return income can fund the next round, which keeps the strategy from depending on a large capital outlay. “You don’t have to go spend a bunch of capital. You don’t have to buy a bunch of new software for this,” Douglas says. “But you do have to have your own data over time. And that will not happen overnight. That is a strategy.” He is direct about the timeline. It is a long-term strategy, he says, “and it does not have to be that expensive.”
Rent growth may pick up again, but owners who wait for it are leaving NOI to the market. The expense side is where they have room to act, and the first step is understanding what is driving those costs at each property. For an industry grappling with persistent inflation and softening rents, the message is clear: the path to protecting NOI runs through operational efficiency, not hope for a rent rebound. Owners who fail to adapt may see their property values erode, while those who act could gain a competitive edge.
