For years, apartment owners relied on rent growth to offset rising expenses. That strategy is no longer working. Rent increases have slowed dramatically, while insurance and utility costs continue to climb, squeezing net operating income (NOI) and property values. Bill Douglas, CEO of OpticWise and co-author of Peak Property Performance®, says the margin squeeze was the dominant topic at industry trade shows this year. “My expenses went up, I can’t increase the price. So therefore, I have a margin squeeze,” Douglas said, summarizing what he heard from owners.
After the pandemic, low interest rates and strong demand allowed owners to underwrite deals expecting rent to rise 3% to 6% annually. “You were banking on the appreciation of rent,” Douglas said. “Basically, it’s a supply demand equation.” That equation has shifted. More apartments have come online and demand has softened. Tenants still want quality, but the market is only tolerating rent increases of 1% to 2% this year.
Operating costs, however, have not slowed. Douglas noted that insurance costs have risen 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 directly 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 market rents, but they can influence how efficiently the property runs.
Many owners expected technology to solve the problem. “Everybody thought PropTech would do it five years ago, and it didn’t. Everybody thought AI would do it,” Douglas said. Interest in AI is high, but owners are asking 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 often pay for AI features inside each vendor’s software but 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 said. “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 asset managers specific 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 said. “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, “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. Bill Douglas is CEO of OpticWise and co-author of Peak Property Performance®. For over three decades, he has used technology to solve complex business problems, and he also coaches executives and entrepreneurs, men over 45, on body, business, and being as ResilienceGuy.
