IREM Study Finds Expenses Down, Rents Up For Multifamily Properties

By Dees Stribling, Contributing Editor

Chicago—For the owners of rental apartments, expenses have generally gone down, while gross rents are up, according to a new study by the Institute of Real Estate Management. The study, which the Chicago-based organization undertakes every year, analyzes operating income and cost figures for 3,059 multifamily rental properties representing over 645,000 units in the United States and Canada.

The study found that total expenses for three of four conventional rental apartments categories—including garden; low-rise, 25-plus units; and elevator—dipped between 1 percent and 1.7 percent in 2010 compared with the prior year, while those for the remaining category, low-rise buildings with 12 to 24 units, rose a mere 1.3 percent. At the same time, gross possible rents last year for two of the four buildings rose 0.5 percent and 2.6 percent, respectively, from the year earlier, with the two remaining building types experiencing year-over-year declines of 0.2 percent and 2.1 percent, respectively.

NOI for three building types rose slightly or stayed essentially the same last year versus 2009. NOI for low-rise buildings with 25 or more units rose 6 percent to $4.45 per square foot; that for elevator buildings increased 3.5 percent to $8.17 per square foot; and NOI for garden apartments dipped a slight 0.8 percent to $4.86 per square foot. The study did not report NOI for low-rise buildings with 12 to 24 units.

A 2010-versus-2009 comparison of vacancy and rent loss as a percentage of gross possible income showed a minor decrease, from 0.1 percent to 3 percent, for all conventional apartment types. Different metro areas saw significant differences in vacancy and rent loss levels, however. The lowest vacancy and rent loss level in the United States was in Boston, where a median vacancy and rent loss of 4.5 percent or less of gross income was reported for the three building types for which data was available.

The study also took a look at some specific kinds of expenses for multifamily owners. Utility costs were reported for three of the four building types, and all three showed relatively minor increases in 2010 compared with the prior year. Elevator buildings continue to have the highest utility costs, rising 5.1 percent last year to $1.23 per square foot. Low-rise buildings with 25-plus units saw a cost rise of 1.4 percent, increasing to $0.75 per square foot, while garden buildings saw a cost rise of 4.6 percent, increasing to $0.68 per square foot.

The changes in maintenance and repair costs varied widely. Low-rise buildings with 12 to 24 units experienced a 16 percent increase in such costs in 2010 from the year earlier, but for low-rise buildings with 25-plus units, costs fell 13.2 percent. Maintenance and repair costs for elevator buildings dropped 8.3 percent, while those for garden buildings remained unchanged.

Another spot of good news for landlords—and wholly reasonable, considering the state of the economy—was that three of the four building types examined experienced a decrease in resident turnover in 2010 compared with a year earlier. Turnover for low-rise buildings with 25-plus units declined 8.7 percent to 40.7 percent; that for elevator buildings decreased 8.2 percent to 34.4 percent; and that for garden buildings dipped 1.3 percent to 53 percent. By comparison, turnover in low-rise buildings with 12 to 24 units rose a scant 0.5 percent year-over-year.