The Impact of Rising Multifamily Insurance Rates on Rent

Insuring commercial real estate is becoming harder, and the multifamily sector is no exception. Property insurance rates continue to soar as insurers aim to mitigate massive losses amid the increasing number of devastating climate change-related disasters. Coastal states like Florida and California are bearing the brunt of the rising insurance costs as wildfires, hurricanes, and storms go on the rise, and fears of earthquake damage remain ever-present. Some insurers have ceased offering property insurance coverage in certain markets altogether, including Allstate, which stopped accepting new applications in California in late 2022, and State Farm, which did the same in 2023. Progressive and Nationwide revealed earlier this year that they would no longer provide commercial property coverage for new customers in Florida.

Raising asking rents for apartment units is one avenue some multifamily property owners could pursue to mitigate the high cost of property insurance. So, we’re taking a look at changes in rental rates in the California and Florida markets, with the highest insurance increases at the mid-year point.

Market Multifamily Insurance Rate Growth Multifamily Rent Rate Growth
Orange County, CA 79.1% 1.3%
Jacksonville, FL 61.8% -0.8%
Tampa, FL 52.1% 0.5%
Oakland, CA 50.2% 0.0%
Fort Lauderdale, FL 48.8% 2.3%
San Francisco, CA 44.7% -0.2%
SOURCE: Q2 2023 multifamily insurance rates, Marcus & Millichap. Q2 2023 Apartment rent growth rates, CBRE

Given the diminishing landscape of insurance options coupled with soaring prices, multifamily owners, particularly those in disaster-prone markets, are challenged to find or renew insurance policies at a reasonable rate. Reasonable is relative. “If you get a multifamily renewal done this year with a rate increase in the 20 percent to 30 percent range, I consider it a home run,” James Rozzi, an executive vice president with insurance organization Risk Placement Services, noted in a recent report. It would indeed be a home run as the average premium for multifamily insurance in the U.S. leapfrogged a stunning 33 percent year-over-year in the second quarter of 2023, according to research from Marcus & Millichap.

Judging by the numbers, there’s no correlation between rising insurance costs and rising rents. While Southern California’s Orange County topped the list of the highest year-over-year increase in California and Florida multifamily insurance rates with a jump of 79.1 percent, rental rates in the market rose just 1.3 percent, well below the 2.6 national year-over-year average. But in Jacksonville, Florida, where multifamily insurance rates rose a staggering 61.8 percent, apartment rental rates declined by 0.8 percent year-over-year. San Francisco also saw its apartment rental rates fall, declining 0.2 percent from the second quarter of 2022, in the face of a 44.7 percent rise in multifamily insurance rates. Earthquake-prone Los Angeles didn’t make the list of the California and Florida cities with the highest year-over-year increase in insurance rates because Los Angeles recorded a relatively modest increase in insurance costs of just 27.2 percent and a below-average rise in apartment rents of 1.6 percent.

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It appears multifamily property owners have not passed on the high cost of insurance to tenants—yet. But that could be because different jurisdictions have different rules about how often and how much apartment rents can be raised within a certain timeframe. Yet, new developments can serve as a workaround of sorts, as they can put a hefty price tag on units right from the start. Developers are working feverishly to address the multifamily housing shortage, and those builders who are erecting luxury apartment properties may be in a better position to lessen the economic sting of exorbitant insurance costs by collecting the sky-high rents that accompany such high-end properties. Multifamily rents have been on the rise for quite some time, and they continue to go on the upswing due to demand outpacing supply and barriers to the single-family market, but the rate of rent growth may increase further if owners begin hiking rental rates in an effort to meet their property premiums and still make a profit.

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Mike McNamara

Mike McNamara

A Las Vegas Realtor since 2008. Mike has a wide range of knowledge around all things Las Vegas.

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