For all Top 50 NMHC third-party management firms, the subject of managing rising operating costs is a topic that has come to be front and center in many recent client conversations.
“As 2025 budget discussions were taking center stage toward the end of 2024, our clients increasingly highlighted the issues of rising operating costs,” says Lisa Narducci-Nix, director of business development at Drucker + Falk.
“This trend”, she adds, “underscores our need for strategic planning and cost management to navigate the continued challenges ahead.”
The multifamily sector is facing unprecedented headwinds as operating costs continue to rise, driven by factors ranging from inflation and labor shortages to increased insurance premiums and energy expenses. As a result, multifamily operators are working to find ways to maintain profitability while providing quality living spaces for their residents.
“In this challenging environment, it is clear to us that adapting to these rising costs will require a multifaceted approach — one that blends innovation, strategic marketing, operational efficiency and technological adoption,” says Narducci-Nix.
Challenges of rising costs
Across its 11-state footprint spanning over 42,000 units, Drucker + Falk has seen operating costs for many of its managed assets surge in recent years. The supply chain disruptions and labor shortages caused by the COVID-19 pandemic have escalated material costs, while rising energy prices are putting significant strain on both building owners and renters.
At the same time, insurance premiums — often linked to increased natural disasters and climate-related risks — have increased steadily. According to Yardi Matrix, the average multifamily expense per unit saw a 9.3 percent increase on a trailing 12-month basis from mid-year 2023, driven primarily by spikes in insurance costs. These rising costs have forced many multifamily operators to raise rents, but with rent growth slowing in some markets, finding other ways to reduce costs and increase revenue is now more critical than ever.
In markets like Raleigh-Durham, where demand for multifamily housing remains robust, operators are employing innovative strategies to offset mounting pressures.
“Our stabilized Raleigh-Durham portfolio, which reflects approximately 8,000 units, reached an occupancy of 94.6 percent at the end of the third quarter, a slight increase from 93.7 percent a year earlier and 2 percent higher than in January 2024,” says Narducci-Nix.
Recent data from RealPage shows that the Raleigh-Durham multifamily market continues to exhibit strong occupancy rates, averaging around 93.2 percent, alongside seven consecutive quarters of positive net absorption — clear indicators of enduring demand for rental properties. However, rising costs remain a key concern, spurring operators to focus on maintaining or enhancing profitability despite the challenges.
Strategic cost management
One of the key strategies multifamily operators are using to combat rising operating costs is enhancing operational efficiency. By reassessing workflows, minimizing waste and identifying ways to optimize day-to-day processes — from renegotiating service-provider contracts to implementing energy-efficient systems — property owners can significantly reduce long-term expenses.
More and more, property managers are turning to technology to play a major role in boosting onsite team productivity, freeing staff to devote more time to customer service and resident retention. This added focus creates the opportunity to deliver a powerful one-two punch by reducing vacancy loss (thus boosting revenue) and lowering turnover costs — one of the largest controllable expense categories.
Another increasingly popular approach is the shift toward centralized operations. According to a recent multifamily tech survey conducted by NMHC and One11 Advisors, nearly half of respondents (48.4 percent) in the multifamily sector implemented centralization programs in 2023, and 51.6 percent plan to follow suit in 2024. However, scaling up a centralized model often requires a critical mass in a given market, and fee managers must secure buy-in from clients.
“We have long embraced centralized operations,” says Narducci-Nix. “In fact, Drucker + Falk was an early adopter many years ago, establishing a dedicated ‘welcome center’ for leasing and sharing maintenance resources. While we’ve always had the necessary scale in our Raleigh-Durham portfolios, securing client buy-in has often been the real challenge.”
Staffing shortages — both in finding quality employees and managing rising payroll and benefits — further drive this move to centralize. Yet, despite its advantages, centralization can result in a loss of personal touch.
When leasing and maintenance become more transactional, residents may feel less connected to their community. In turn, lower engagement can drive higher turnover rates, ultimately affecting the bottom line.
Combating rent fraud
With operating costs continuing to climb, multifamily operators in Raleigh-Durham are also grappling with a surge in renter fraud. Fraudulent applications and fabricated rental documents are on the rise, particularly as renters vie for housing in a competitive market.
In response, operators are investing in more sophisticated tenant screening technologies and services, including advanced software for verifying income, employment and rental history with greater accuracy. These measures, however, come with higher operational costs, as operators allocate additional resources for new technology, staff training or even hiring specialized personnel.
“Earlier in 2024,” says Narducci-Nix, “Drucker + Falk switched to a new service provider portfolio-wide, opting for a more integrated platform. This system handles credit and criminal screenings, offers two-part verification (including facial image checks), and automates income verification — a process previously done manually.”
Collectively, these efforts underscore how renter fraud is prompting operators to adopt more rigorous and innovative strategies to protect their properties and maintain the integrity of their resident base.
Tech’s role in boosting NOI
One of the most significant tools in managing rising operating costs is technology. With the help of property management software, operators can streamline many of their day-to-day operations and gain deeper insights into their properties’ financial performance. This includes tracking operating expenses, predicting future costs and identifying areas where efficiencies can be improved.
As the insurance landscape evolves, multifamily owners are increasingly turning to tech-driven risk mitigation to secure lower premiums and protect their investments. From smart water leak detectors that catch problems early to advanced fire detection systems and robust security features, these innovations help reduce the likelihood of costly incidents.
At the same time, flood prevention technologies and home automation tools further minimize risks associated with natural disasters and energy inefficiencies — making properties more attractive to insurers by positioning them as lower-risk environments.
The role of data analytics is also expanding, allowing insurers to assess properties based on real-time insights and historical trends. Multifamily operators that adopt AI-driven background checks, integrated HVAC systems and comprehensive screening platforms demonstrate a commitment to proactive risk management, which can translate into reduced insurance costs. Ultimately, investing in tech-enabled safeguards yields a powerful dual benefit: properties become safer and more resilient while owners reap the rewards of lower premiums and enhanced tenant satisfaction.
Additionally, technology is enhancing resident experiences through apps that allow tenants to pay rent, submit maintenance requests and communicate with property managers, all from their smartphones. This improves the resident experience, making tenants more likely to renew their leases while also providing a streamlined way to manage operations for property managers.
“Drucker + Falk takes an enthusiastically pragmatic approach to new technology,” says Narducci-Nix. “We only integrate solutions into our operating platform once they’ve demonstrated measurable benefits — both on their own and in conjunction with our existing systems. Our ultimate goal is to boost onsite productivity and deliver improved quantitative outcomes for our clients.”
Looking ahead
As multifamily operators in the Raleigh-Durham market and beyond continue to grapple with rising operating costs, it is clear that those who succeed will be the ones who embrace innovative strategies, adapt to new technologies and remain flexible in a constantly changing market. By focusing on improving operational efficiencies, combating fraud, using technology to enhance profitability and offering creative marketing and renewal strategies, operators can weather the storm and continue to generate strong returns for their investors.
In the coming months, it will be essential for operators to keep a pulse on rising costs, market trends and technological advances. The key to managing rising costs is not simply raising rents but finding a balanced approach that prioritizes both profitability and resident satisfaction.
In an era of rising costs, this balance is the key to success in the multifamily sector.
— By Staff Reports. This article originally appeared in the January 2025 issue of Southeast Real Estate Business.