The worst of the multifamily insurance shock may be easing
Multifamily Operating Costs Still Outrun Revenue Growth
The worst of the multifamily insurance shock may be easing, but apartment owners are not yet seeing the payoff in higher net operating income.
That is the central message in Trepp’s latest review of annual financial statements for multifamily properties backing securitized commercial mortgages. The data show a meaningful slowdown in expense growth during 2025, led by a sharp deceleration in property insurance costs. But revenue growth cooled at the same time, utilities became more expensive and median NOI growth fell to 1.8% from 3.4% a year earlier.
For commercial real estate investors, the distinction matters. Lower cost growth is welcome, particularly after several years of escalating insurance and operating expenses. Yet slower expense growth is not the same as improved operating leverage. In 2025, median operating-expense growth still exceeded median revenue growth, meaning the sector had not reached the point where more top-line growth was reliably flowing through to NOI.
The Expense Slowdown Did Not Lift NOI
Trepp found that median total operating-expense growth slowed to 3.7% in 2025 from 5.1% in 2024. Property insurance delivered the most visible improvement. The median annual increase fell to 2.7% in 2025 from 10.9% a year earlier, an 8.2-percentage-point deceleration.
That reversal is significant because insurance had been the fastest-growing major expense line over the five years studied. Compounding Trepp’s annual median changes from 2021 through 2025 produces an implied 57.9% increase in property insurance expense, equal to a 9.6% compound annual growth rate. No other major line item in the report rose as quickly over that period.
Still, insurance relief did not solve the broader operating problem. Median revenue growth slowed to 2.8% in 2025 from 4.2% in 2024, while NOI growth decelerated to 1.8%. Total expenses grew 0.9 percentage points faster than revenue during the year.
The figures suggest that the industry’s pressure point has shifted rather than disappeared. The insurance line became less punitive in 2025, but the slower revenue environment left owners with less ability to absorb even more moderate expense increases. Utilities moved in the wrong direction, with median growth accelerating to 6.7% from 3.9%. Repairs and maintenance remained essentially flat at a still-elevated 3.1% growth rate.
In other words, multifamily owners gained some relief from one of their most volatile cost categories, but they did not gain enough revenue momentum to convert that relief into a stronger NOI trend. That is especially relevant for properties facing loan maturities, because slower NOI growth offers less incremental support for refinancing at higher borrowing costs.
Five Years Of Costs Outpacing Revenue
The 2025 results look less encouraging when placed against the five-year operating picture. Trepp’s compounded median measures show total operating expenses rising 32.4% from 2021 through 2025, compared with 26.6% for total revenue. NOI increased 21.9% over the same period, trailing both revenue and expense growth.
Those figures do not represent aggregate dollar growth across the industry or the experience of a single median property. Trepp calculates the year-over-year change for each property with valid financial data, takes the median across qualifying properties and compounds those annual medians. The property sets can differ by year, line item and geography. As a result, the measures are directional rather than a property-level accounting bridge.
Even with that limitation, the direction is hard to ignore. Costs have taken a larger share of the sector’s growth over the past five years, and NOI has not kept pace. For investors, that makes headline rent or revenue growth an incomplete measure of asset performance. The more consequential question is how much of that growth remains after property-level expenses.
The line-item results reinforce that point. Base-rent income posted an implied five-year increase of 23.3%, while other income rose 36.8%. Total revenue grew 26.6%. Several expense categories outpaced that total revenue measure, including utilities at 32.8%, repairs and maintenance at 31.4% and general and administrative expenses at 30.4%.
Insurance remained the standout, but it was not the only source of pressure. Management fees and payroll and benefits each grew by roughly 26.5%, essentially matching total revenue growth. Advertising and marketing rose 23.2%, while real estate taxes and professional fees were comparatively restrained, with implied five-year increases of 10.7% and 6.9%, respectively.
That pattern points to a more complicated operating environment than a simple rent-growth story. Owners may be able to improve ancillary income, adjust leasing strategy or manage staffing, but much of the cost structure remains difficult to control. Utilities, insurance, repairs and administrative expenses can all move independently of rents and the report does not establish the dollar contribution of any line item to total expense growth.
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Regional Gaps Show Different Operating Pressures
Trepp’s Census-division data shows that expense pressure was broad-based, even though outcomes varied considerably by geography. In all nine Census divisions, the report’s implied five-year operating-expense growth measure exceeded the corresponding revenue-growth measure.
The national figures showed revenue rising 26.6%, operating expenses increasing 32.4% and NOI growing 21.9%. But regional results ranged widely. East South Central posted the strongest implied NOI growth at 29.6%, followed by New England at 27.8% and South Atlantic at 27.1%. West South Central ranked last at 15.8%, with West North Central close behind at 16.6%.
East South Central’s performance is notable because its implied revenue growth was 30.9%, while operating expenses increased 33%. That narrow gap still left expenses ahead of revenues, but it was one of the smallest differences among the divisions. Its real estate tax measure was flat on a compounded basis, although Trepp cautioned that the rounded 0% figure does not mean every property or the same group of properties experienced no tax growth.
New England showed a similarly narrow spread. Revenue increased 29.3% and operating expenses rose 30.6%, while NOI grew 27.8%. That relatively favorable relationship helps explain why New England ranked near the top for NOI growth despite posting the lowest implied insurance growth among the nine divisions at 45.3%.
At the other end, West South Central combined 23.5% revenue growth with 29.9% operating-expense growth and just 15.8% NOI growth. It also recorded the highest implied insurance growth of any Census division at 72%. South Atlantic posted insurance growth of 68.4%, while West North Central reached 66.6%.
The geographic results do not explain why individual regions performed differently. Trepp’s analysis does not isolate differences in property quality, insurance coverage, local insurance markets, tax policies, operating practices or sample composition.
But the dispersion does make one point clear: national averages can obscure materially different risk profiles across apartment markets. A portfolio concentrated in a region with rapid insurance or expense growth may face a different refinancing and valuation outlook than a portfolio whose revenue and cost trends are more closely aligned.
Metro Results Separate Leaders From Laggards
The selected metropolitan-area data make the divide even sharper. Trepp examined seven markets, not a ranking of all U.S. metros and found implied five-year NOI growth ranging from 3.4% in San Francisco to 33.9% in Miami-Fort Lauderdale-West Palm Beach.
Miami stood apart on both revenue and NOI. The market posted 39.4% implied revenue growth and 33.9% NOI growth over the five years, the highest among the metros included in the report. But its results also illustrate the cost pressures still embedded in high-growth markets: its implied insurance growth was 101.9%, meaning the compounded annual median slightly more than doubled over the period. Real estate taxes grew 32.4%.
Miami’s data show that strong revenue growth can preserve NOI growth even amid extraordinary cost increases. That does not mean insurance costs were harmless or fully absorbed at every property. Rather, it shows the difference that a strong top line can make when expenses are rising quickly.
San Diego offered another example of relatively resilient income performance. Revenue rose 33.2% and NOI increased 32%, nearly keeping pace with the market’s top-line growth. Insurance increased 58.4%, but advertising and marketing grew a comparatively modest 10.4%, while real estate taxes rose 10%.
Phoenix also produced solid NOI growth of 25.6% on 29.6% revenue growth. The market faced a 67.5% increase in the implied insurance measure and a 41.3% rise in advertising and marketing. Atlanta’s profile was more mixed. It generated 27.5% revenue growth, but NOI grew 18.7%, while advertising and marketing rose 47.6%, the highest figure among the selected metros. Insurance increased 73.9%.
Houston’s figures point to a narrower margin for error. Revenue grew 22.1%, but NOI increased 15%. Its insurance measure rose 77.1%, while real estate taxes increased 9.8%. Denver was weaker still, with 17.6% revenue growth and 7.4% NOI growth. The market’s 25.9% implied rise in real estate taxes was the highest among the selected metros and advertising and marketing increased 43.6%.
San Francisco was the clear laggard in the group. The market recorded 12.2% implied revenue growth and only 3.4% NOI growth over the five-year period, even as insurance increased 51% and real estate taxes rose 11%. The contrast with Miami is striking: the same broad category of cost pressure existed in both markets, but the top-line growth available to offset it was vastly different.
Investors Need More Than Cooling Costs
The report offers a cautiously constructive signal on expenses, but it does not yet support a broad conclusion that multifamily operating performance is turning decisively higher.
A drop in median insurance growth from 10.9% to 2.7% and a decline in total operating-expense growth below 4% are meaningful improvements after several years of steep increases. Those changes could create a better foundation for NOI if revenue gains reaccelerate and if utility growth moderates.
For now, however, the numbers describe a sector still working through accumulated cost pressure. Over the past five years, operating expenses have grown faster than revenues, and 2025 repeated that pattern even as the pace of cost increases slowed. The result was weaker, not stronger, NOI growth.
That leaves investors with a more selective underwriting task. Broad market narratives about moderating inflation or easing insurance pressure may be helpful context, but they cannot substitute for a property-level review of revenue durability, utility exposure, insurance coverage, taxes, debt terms and debt-service coverage.
Trepp’s data does not show whether individual properties can cover their debt obligations, since that depends on starting NOI, loan balance, interest rate and amortization as well as operating performance.
The more immediate takeaway is straightforward: multifamily’s expense environment is easing, but not yet favorable. A genuine improvement in operating momentum will require a sustained period in which revenue growth exceeds expense growth and more of each additional dollar of income reaches NOI.
Until then, the divide between markets such as Miami and San Francisco is likely to remain central to how investors assess apartment risk and value.
Source: GlobeSt.
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