Expense Creep is the Ne

For years, vacancy was the most visible threat to real estate performance. Empty units, dark space, and stalled leasing activity were obvious, measurable, and urgent. Owners built strategies around absorption, concessions, and demand generation because vacancy demanded immediate action.

In 2026, the most damaging risk facing real estate portfolios is far less visible.

Across multifamily, industrial, and office assets, many properties appear stable on the surface. Occupancy is holding. Revenue growth has normalized. Buildings are leased and operating. Yet net operating income continues to fall short of expectations. The gap is no longer driven by what is missing from the top line, but by what is quietly eroding the bottom.

Expense creep has replaced vacancy as the primary threat to NOI.

Vacancy forces attention. It is immediate, public, and difficult to ignore. Expense creep operates differently. It advances gradually, embedded in day-to-day decisions that feel reasonable at the time but compound over months and years.

A contract renews automatically. A new vendor is added to solve a short-term problem. Additional staff are hired to relieve pressure points. A new system is layered on without retiring an old one. None of these choices raise alarms in isolation. Together, they reshape the cost structure of a portfolio in ways that permanently compress margins.

Warren Buffett once observed that costs are often easier to control than revenues, yet they receive less attention because they rarely feel urgent. In today’s environment, that lack of urgency is proving expensive. With rent growth constrained and capital tighter, inefficiencies that once hid behind rising revenues are now fully exposed. The margin lost through expense creep is far harder to recover than a vacant unit ever was.

The most common driver of expense creep is not inflation alone. It is passivity.

Vendor relationships drift from strategic to habitual. Service providers remain in place because change feels disruptive, not because performance is exceptional. Over time, portfolios accumulate overlapping vendors and services that dilute accountability while inflating costs without delivering proportional value.

Organizational drift compounds the issue. As portfolios scale or evolve, roles between ownership, asset management, and property management often blur. Decision rights become unclear. Accountability softens. To compensate, organizations add people or outsource responsibility rather than addressing the underlying structure. Payroll grows, coordination slows, and performance stagnates.

Legacy processes further entrench inefficiency. Procedures designed for different market conditions persist because they are familiar. Manual workflows coexist with expensive systems. Approval chains lengthen in the name of control, adding friction and cost without improving outcomes. Reporting expands in volume but declines in usefulness.

Peter Drucker captured this dynamic succinctly when he wrote, “There is nothing so useless as doing efficiently that which should not be done at all.” Many real estate organizations are highly efficient at executing processes that no longer serve their strategy. Over time, these well-intended efforts become structural drag rather than operational leverage.

The most disciplined operators in 2026 are not reacting with indiscriminate cost cuts. They are asking more precise questions about how resources are being deployed and whether those dollars are producing measurable results.

They are reassessing vendor relationships through the lens of value delivered, not tenure. They are clarifying who owns decisions, who owns results, and where redundancy has crept in. They are simplifying operating models to restore speed, clarity, and accountability. Most importantly, they are aligning people, processes, and oversight with the realities of today’s revenue environment, not yesterday’s assumptions.

This is not about austerity. It is about precision.

Research from McKinsey & Company consistently shows that organizations that actively reallocate resources outperform those that focus solely on growth initiatives. In real estate, that reallocation often begins inside the operating model, not in the acquisition pipeline.

Vacancy once demanded action because it was visible and immediate. Expense creep thrives because it is subtle and gradual. It rewards inaction and penalizes delay. In a market where revenue growth is harder to manufacture, it has become the defining factor separating resilient portfolios from quietly underperforming ones.

As the year begins, many owners are focused on what the market might do next. The more productive question is what they can do next. Expense creep does not correct itself, and waiting for external conditions to improve rarely restores lost margin. January is not about forecasting perfection; it is about establishing discipline. The organizations that take time now to examine how their portfolios actually operate, where resources are being consumed, and whether accountability truly exists will enter the year with momentum rather than hesitation. In 2026, progress belongs to those willing to confront reality early and act with intention.