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The True Cost of Multifamily Property Insurance
Anyone who owns property understands the irrefutable fact that insurance costs are on the rise – by a lot. To put this into numbers, the Deloitte Center for Financial Services anticipates that “the average monthly cost of insurance for a commercial building in the United States could increase from $2,726 in 2023 to $4,890 by 2030.” This represents an 8.7% compound annual growth rate.
A recent CBRE article explained that rising insurance costs don’t just impact the bottom line of CRE ownership. It can also lead to a decrease in overall property values. Specifically, “rising insurance costs have caused a 3.6% decrease in multifamily property values nationwide since Q4 2019,” the article noted. Specific multifamily value declines listed included:
- South-Central region: – 7.8%
- Florida: – 6.8%
- Houston: – 11.1%
- Jacksonville, FL: – 9.6%
At the other end of the spectrum, Oklahoma City ( – 3.8%) and West Palm Beach ( – 5.0%) had the least severe declines in property value.
The article also commented that insurance is the sixth largest expense for multifamily property owners, though it has proven to be the second-biggest contributor to total expense growth since 2019.
Even with rising insurance costs, there are some bright spots. For example, while South Florida multifamily owners have paid a substantial increase in insurance premiums, some of the impact has been mitigated due to ongoing renter demand and continued rent growth. Additionally, insurance costs are beginning to moderate – even in Florida. “Q2 2024 marked the first quarter of lower insurance cost growth across all regions since mid-2022,” the article explained.
Another factor is that improving renter demand led to higher absorption rates in Q2 2024, which outpaced new supply. The article pointed out that “the shrinking supply pipeline will eventually drive above-average rent growth in most markets.”
Something else to look forward to is that cap rates have stabilized, and when the Federal Reserve begins its interest-rate cuts, those rates will fall. “Even as expenses remain high, we expect that multifamily values in some markets will begin to surpass their previous peaks as early as mid-2027,” the article said.
- ◦Financing
- ◦Economy
