Expenses Increase While Rents Decrease, Presenting MDU Property Owners with a Unique Challenge

The "good times" of 2021-2022, when Multi-Dwelling Unit (MDU) property owners enjoyed explosive rental rate growth, are long gone.

Now, instead of raking in higher profits seemingly every month, property owners are facing "persistent inflationary pressures" that are causing expenses to grow at a significantly higher rate than effective rents.

A new study conducted by commercial real estate investment brokerage firm Marcus & Millichap pointed out that the extreme rise in costs relative to rent growth has forced some developers to pause projects and others to delay construction altogether.

A big issue for property owners who have projects already operational is that most of these costs are completely out of their control. The only way to offset them, then, is to find new ways to boost revenue.

But, with rental rate growth slowing considerably, where do they turn?

By working with Elauwit, a national telecom services provider, MDU property owners can generate significant additional revenue by giving residents something they desperately need in today's high-tech world -- outstanding internet connectivity.

Operational Costs on the Rise

The Marcus & Millichap report showed that the average apartment company experienced an 8.6% increase in operational costs year-over-year for the second quarter of this year. Those stats fall right in line with an August report from GlobeSt.com, which showed that average operating expenses increased by 28%.

Costs for marketing and turnover each increased by more than 10% in that timeframe. Other expense line items such as payroll, management, taxes and administration all rose by 7% or more.

Insurance, though, experienced the largest year-over-year increase. On a per-unit basis, insurance costs increased by less than 10% in only five major markets in the U.S. -- St. Louis, Pittsburgh, Milwaukee, Detroit and Columbus.

Some of the regions that experienced the highest increase in insurance costs were all six of Florida's major metro areas, along with Kansas City, Phoenix and Oakland.

This is all a dramatic change from where the MDU market was just 12 months ago, when effective rents had increased almost two times the rate of expenses. Now, that trend has just about completely inverted.

No Need to Shift Around

The Marcus & Millichap study further highlighted what some developers are doing in response to the increased costs -- shifting their focus from expensive markets to more affordable ones.

Compared to the cities above, other metro regions such as Raleigh and Charlotte, North Carolina, and Reno and Las Vegas, Nevada, experienced only mild increases in insurance costs on a per-unit basis.

Overall, markets in the Sun Belt and the Midwest typically have lower insurance premium costs, but developers have recently been shifting some investments from the Sun Belt to the Midwest for various reasons.

While this could prove fruitful for investments in the short term, there are a lot of logistical complications with shifting money around the country. Since new development projects take time, for instance, they might be started during a favorable economic time but not get completed until it turns sour.

In other words, if developers don't time the market just right, they could be in for a much different environment when they're ready to open than when the shovels first hit the ground.

Instead of chasing something better in new markets, MDU property owners should turn instead to investments that bring a significant ROI in both the short- and long-term.

Partner with Elauwit to Increase Revenue

While MDU property owners may not be able to do much about reducing expenses or even raising rents, they can still affect positive change on their bottom line.

By partnering with Elauwit, property owners can boost their revenue while also providing residents with best-in-class internet connectivity -- a service that is no longer a luxury but essential.

Investing in an outstanding internet network for your property can take it to new heights, helping to offset increased costs due to inflation now while building in a stable, long-lasting revenue stream. And the best part is that the network will serve as an effective way to attract new residents to your property and convince current residents to re-up.

To learn more about how Elauwit can help you create an internet network that sets your property apart and brings in new revenue at the same time, contact us today.