How Much Do Utilities Impact Net Operating Expenses in Real Estate?

Key Takeaways:

• Utility costs are a major, controllable expense, often accounting for 15–20% of operating expenses in multi-family housing developments.
• Grid dependency is increasingly risky, with aging infrastructure, unpredictable fuel costs, and slow interconnection agreement timelines affecting power reliability and cost predictability.
• Virtual Utility® offers an on-site, turnkey microgrid solution that reduces utility costs and improves resilience.

Developers can unlock new revenue streams through demand response programs, EV charging integration, and energy resale—while also qualifying for federal tax credits of up to 40%.

Improving NOI through energy autonomy not only boosts financial returns but also strengthens ESG positioning and long-term asset value.

The multi-family real estate sector is poised for growth in 2025, with strong renter demand driving improved occupancy and accelerating rent growth. The latest CBRE report projects the average multi-family vacancy rate will be about 4.9%, with average annual rent growth at 2.6%. 

At the same time, the multi-family housing sector faces rising operating expenses, including utilities and insurance, and elevated interest rates. Uncertainty over tariffs could increase prices for building supplies, making new construction more difficult. These factors are compressing net operating income (NOI) margins, making it more critical than ever for property owners and investors to manage expenses effectively.

While many factors are beyond developers’ control, utilities are a significant and controllable expense. Implementing on-site power generation and energy storage solutions can help mitigate utility costs, enhance energy resilience, and improve margins. 

Utilities: A “Hidden Giant” in Net Operating Expenses

Operating expenses (OpEx) for multi-family housing can vary greatly based on the region, the state of the property, and other factors. Most multi-family real estate developers face expenses related to property management fees, maintenance and repairs, property taxes, insurance, administrative costs, landscaping, security, and utilities.

Utility expenses for multi-family buildings may include water/sewer, gas/electric, waste management, and internet or cable for common areas. These expenses often comprise 15-20% of OpEx in multi-family and mixed-use properties, according to a recent report, making utility costs a “hidden giant” in multi-family real estate OpEx.

Utility usage can vary considerably across regions and climates. Grid prices are often volatile, especially in the U.S.. Here’s a breakdown of factors impacting recent price fluctuations:

• Unpredictable Demand
  Many utilities experience spikes in demand during extreme weather, such as a heat wave or an Arctic cold snap such as a polar vortex. These dramatic swings put pressure on power grids, which may already be facing supply constraints from power plant outages and fuel shortages during adverse weather events.
  
  
• Fluctuating Fuel Prices
  Fuel prices continue to fluctuate due to geopolitical events, increasing demand, and inflation. This volatility can impact real estate developers’ bottom lines, making it difficult to budget for utility costs.
  
  
• Aging Infrastructure
  With more than 70 percent of transmission lines more than 25 years old and approaching the end of their lifecycle, power infrastructure is in desperate need of an upgrade, but new demand is fast outpacing construction efforts. The result is increasing pressure on inadequate infrastructure, resulting in limited transmission capacity and local price spikes.

The Problem With Status Quo Energy Models

Traditional energy models that place full dependency on the public grid are increasingly unsustainable for builders and developers. Price fluctuations, along with increasing demand on aging infrastructure, introduce elevated uncertainty related to how much to budget for utilities in any multi-family development. 

Some developers want to incorporate renewable energy sources, such as solar arrays, to provide support during peak demand times when local utility prices tend to spike. While adding renewables can make a big difference, it can take up to four years to process an interconnection agreement with a local utility. If you’re trying to move quickly, waiting on the “slow gears of bureaucracy” to turn can become a costly bottleneck.

Beyond delays, a lack of control over energy use and sourcing can mean higher monthly utility bills, including peak demand charges. Peak demand charges will comprise a significant percentage of your energy costs and are difficult to predict without an onsite energy management system to provide flexibility and visibility.

Diesel generators can provide backup power in emergencies, but they are not ideal for long-term energy management. They rely on non-renewable fossil fuels, are expensive to run, aren’t built to sustain prolonged outages, and frequently require maintenance. In an era when organizations prioritize decarbonization and ESG commitments, continuing to depend on gas-powered generators is not a viable solution.

Turn Power Into a Strategic Advantage

For most developers, utility costs represent a non-negotiable line item in their operating budget. With the right tools and knowledge, however, power can become a controllable expense and even a new source of revenue.

Virtual UtilityⓇ represents a new solution for powering multi-family residential buildings, such as condos, apartments and independent or assisted living facilities. It offers the power of a public utility on site, giving owners the ability to control costs and ensure uninterrupted operations in the event of severe weather events or grid outages. 

Powered by the R3Di® System and Grove365’s intelligent energy management software, this next-generation microgrid transforms traditional utility usage into a dynamic asset. You’ll gain real-time control over your energy resources, access to automation tools, and responsive ongoing support from our team of experts.

Enabling proactive strategies such as peak shaving, demand response, and precision load management, Virtual UtilityⓇ helps you reduce your dependence on the grid during high-cost periods — and even take advantage of utility programs that pay for reduced consumption at critical times. You can incorporate onsite renewable resources such as solar panels and wind turbines without waiting for an interconnection agreement. Depending on your utility’s policies, it may be possible to sell excess energy from renewables back to the public grid, creating new income streams for your real estate development.

Additionally, multi-family real estate buildings can earn additional revenue from integrating EV charging stations into the system.

Ultimately, the financial impact of long-term savings is tangible. 

In one scenario, a real estate complex with 272 units using about 1.5 megawatts of power per month will earn $115,000 annually by installing six EV charging stations alongside the R3Di® System. 

Bonus Benefits for Investors and Developers

A turnkey microgrid solution increases your energy autonomy, or ability to generate electric power apart from the public grid. With visibility into energy usage and the tools to manage it effectively, you can reduce carbon emissions, increase fuel flexibility, and improve ESG scores. This adaptability allows you to stay agile, decarbonizing today while preparing for tomorrow’s regulatory and technological changes.

Resilient energy systems also improve operational stability, reducing the risk of tenant displacement and equipment failure. Lenders expect projects to meet standards such as LEED, ENERGY STAR, and other resilience benchmarks, so improvements in this area will boost your credibility with investors. 

Integrated energy platforms that deliver both efficiency and reliability will help you qualify for better financing terms, and you’ll demonstrate a commitment to responsible, future-ready developments. 

Choosing a ready-to-implement microgrid solution also yields tax benefits and savings opportunities:

• Investment Tax Credit (ITC)
  The ITC, established under the 2022 Inflation Reduction Act, allows property owners to deduct 30% of the cost of qualifying clean energy systems from their federal taxes. Projects in designated “energy communities” or those supporting low-income housing may qualify for an extra 10%, bringing total savings up to 40%. It’s a powerful incentive for making clean energy more affordable.
  
  
• Energy Service Agreement (ESA)
  An ESA lets you implement on-site renewable energy with minimal upfront investment. e2 Companies handles the installation, operations, and maintenance of the R3Di® System under this agreement. Combined with Grove365’s intelligent monitoring and optimization, this model delivers reliable, cost-effective energy while freeing you from day-to-day management.

What This Means for Your NOI and Cap Rate

When energy is a controllable expense instead of a fixed cost, you’ll achieve significantly lower utility bills, higher energy efficiency, and the potential for additional revenue from demand response programs. All these improvements to your bottom line drive higher Net Operating Income (NOI), a key to increasing property value.

When you implement the R3Di® System, you’ll immediately reduce operating costs and strengthen long-term resilience, improving your return profile. If your property is in a competitive market with high supply and tight margins, these financial advantages give you an advantage when it comes to winning investors and tenants. Improving your NOI and cap rate doesn’t simply cut costs — it makes your property more valuable, attractive, and future-proof.

Control the Costs You Can

Energy might be costing you more than you think. While some items in your OpEx cost list will remain beyond your control, power doesn’t have to be one of them. With a turnkey microgrid solution, you’ll have visibility into usage and automated adjustments to compensate for peaks and valleys in demand. 

Benchmark your current utility spend and use our calculator to see how much you could save with Virtual UtilityⓇ.