Rising Insurance Costs Special Report

Apartment expenses climbing at twice the pace of rents. Insurance costs are rising at an accelerated rate for commercial real estate, while providers concurrently implement new policy limitations to decrease their exposure. Together, these dynamics are eroding commercial real estate owners' and developers' margins, especially in states with higher environmental risk factors, including Florida, California and Texas. As of June 2023, the average U.S. quarterly apartment premium stood at $180 per unit, translating to a 33 percent year-over-year spike. Following this sizable adjustment, insurance now accounts for more than 8 percent of an owner's quarterly per-unit operating expenses, nearly double the share from five years ago. Factor in rising property taxes and payroll costs, and the expenses associated with apartment ownership rose 9 percent over the past year. At the same time, the national average effective rent rose 4 percent. This disparity and expectations for further operating cost increases and rent growth moderation will broadly influence development proposals, property valuations and investors’ acquisition criteria moving forward.