For years, apartment owners relied on steady rent increases to offset rising expenses. That relationship has broken down. Rent growth has slowed sharply, while insurance and utility costs continue to climb, squeezing net operating income (NOI) and property values. The shift marks a fundamental change in how owners must manage assets, moving from a focus on revenue growth to a disciplined approach to operating costs.
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,” he recalls hearing from owners. After the pandemic, low interest rates and strong demand allowed owners to underwrite deals assuming 3% to 6% annual rent growth. But supply has increased and demand has softened, leaving the market tolerating only 1% to 2% rent increases this year.
Meanwhile, operating costs have not slowed. Insurance costs have risen about 55% per unit between 2021 and 2024, according to Douglas. When insurance and utilities grow by double digits and rent grows by 1% or 2%, the difference comes directly out of 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 hoped technology would close the gap. “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 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 problem, in his view, is that owners pay for AI features inside each vendor’s software but are not applying AI across their own data because they lack 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 benchmarks a property against those three areas and provides specific actions to improve each one. For insurance, that means reviewing coverage and preparing the property before renewal. The sequence matters: improvements that return income can fund the next round, avoiding the need for 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, “and it does not have to be that expensive.”
Rent growth may eventually pick up, 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 costs at each property. For an industry built on rent growth, that represents a significant strategic shift—one that prioritizes operational efficiency and data ownership over market-dependent revenue gains. The implications extend beyond individual owners: as NOI pressure persists, property valuations and refinancing capacity could be affected, making expense management a critical lever for financial stability.
