Multifamily Property Values Fall as Insurance Premiums Climb

Consistent increases in insurance premiums have put downward pressure on multifamily property values, particularly in the nation’s Sunbelt markets. Nationwide, multifamily property values have dropped 3.6% since the end of 2019 due to rising insurance costs, according to CBRE.

Houston was the hardest-hit market in the south-central region, with values dropping 11.1%, while Oklahoma City was least impacted within the region, as property values fell 3.8%. In Florida, where premiums have more than doubled over the past two years, Jacksonville saw property values drop 9.6%, while West Palm Beach multifamily property values fell only 5% in comparison. However, the report noted that while the South Florida multifamily market had some of the most substantial increases in insurance premiums, the impact on property values was offset by resilient renter demand and unprecedented rent growth in 2021 and 2022.

The same is true in California, where wildfires and other environmental factors have inflated insurance costs, but higher rents have offset the negative effects.

Multifamily owners may see some relief as growth in insurance costs is beginning to moderate nationwide, highlighted by lower insurance cost growth across all regions during the second quarter for the first time since mid-2022, according to CBRE.

Typically, insurance represents the sixth-largest expense for multifamily property owners, but since 2019 it has been the second-biggest contributor to total expense growth. While insurance accounts for 8% of total expenses, the number has jumped to 17% and has been the only component of total expenses that has continued to increase this year. Growth in all other expense categories has declined since peaking in mid-2023, said CBRE.

While insurance costs have had an impact on property values, higher cap and vacancy rates as well as lower rent growth have affected values more significantly over the past years. That could be set to change as absorption begins to outpace new supply and rent growth is trending up in most markets.

“Cap rates have stabilized and will begin to fall once the Fed cuts interest rates, improving investor demand,” said the report. “For the first time in over two years, most markets are seeing their estimated multifamily values increase. 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.”