How to Alleviate Margin Compression

With inflation remaining a concern across the US, multifamily property owners and investors face greater uncertainty than ever. Margin compression, the state when revenue is flat and vendor and supplier costs are up, threaten cash flow, purchasing power, long-range growth, and even relationships within the supply chain.

Raising prices is a potential anecdote, but that too could negatively impact your long-term relationship with customers. While a price hike will help fill those gaps, it may incentivize your customers to look for more affordable options in your market. They may also be unwilling to pay at the onset and shutter their business until they relocate somewhere else.

So, what can multifamily property owners do to protect their business, avoid risk, while alleviating margin compression? Here are some choices:

1.  Structure your leases to include special surcharges for special accommodations or assets. One scenario could also involve structuring contracts so prices and fees rise, or fall, according to specified market conditions.
2.  Embrace preventative maintenance measures, which is the surest way to avoid costly risks such as asset replacement. You don’t want the furnace to go out during the winter or the air conditioning to die in the summer, for example. Fine-tuning your assets over the long-term, and budgeting for the last phase of their life cycle will avoid spending more than needed.
3. Develop a cost optimization program that reduces risk by continuing to analyze and adjust expenses, often in real time. This will increase your ability to respond to unexpected weather conditions, market fluctuations, and make your capital planning more effective over time.
4. Quantify and prioritize potential opportunities within your portfolio. Create clear objectives that could lead to investment (or divestment) opportunities that could put your overall portfolio in a better position to improve margins.
5. Automate your facilities maintenance and operations. Automating your workloads will increase visibility, create consistency, and improve efficiency of all your assets. Automated lighting, heating and cooling settings will lead to lowered costs, for example, and automated work orders will improve production efficiency as well.

Overcoming margin compression will not happen overnight. Moving your portfolio on the other side of economic uncertainty requires a great deal of preventative action that are ultimately sustainable over the long-term. Being proactive is key to finding ways, both great and small, that will alleviate the temporary margin squeeze on your portfolio.