Four Design and Construction Decisions That Lower Lifetime Operating Costs in Multifamily and Mixed-Use Assets
Developers in today’s commercial real estate environment face multiple pressures: rising construction costs, persistent interest rates, modest rent growth, and heightened investor expectations. Multifamily and mixed-use properties generally maintain strong occupancy and demand, but long-term returns hinge on net operating income (NOI). Based on our involvement in ground-up developments, we’ve seen how design and construction decisions materially influence lifetime operating costs. Too often, projects reach pre-construction without fully accounting for how such decisions will affect long-term operational efficiency.
Drawing on projects delivered in recent years, we have identified four decisions developers can make before construction begins that have a measurable impact on operating expenses and long-term NOI. These decisions consistently deliver the strongest results when addressed early and coordinated closely with the general contractor and design team.
Market Context
Operating expense ratios (i.e., the share of gross income consumed by property operating costs) are a core indicator of asset performance. In most cases, well-managed multifamily properties maintain operating expense ratios between 35 and 45 percent of gross potential rent, though the numbers vary by market and asset class. Properties below this range tend to operate more efficiently, while higher ratios often signal maintenance inefficiencies or elevated service costs.
According to the Institute of Real Estate Management, national multifamily operating expenses averaged about $8,420 per unit in 2023, representing roughly 41 percent of gross rents. These increases reflect continued pressure on labor, materials, utilities, and contracted services. Here in Southern California, fundamentals remain relatively resilient. Rents are posting modest gains, vacancies are normalizing, and new supply is being absorbed as affordability constraints keep many would-be buyers in the renter pool. Retail components within mixed-use projects are also stable, with submarket vacancies generally in the low- to mid-single digits, according to the Appraisal Institute.
Against this backdrop, design and construction decisions that control operating expenses — without compromising tenant experience — can have a direct and sustained impact on NOI and long-term valuation. Based on our experience, developers can focus these on four decisions during pre-construction that consistently move the needle.
1. Prioritize Energy-Efficient Building Systems
Utility costs remain one of the largest controllable operating expenses in multifamily and mixed-use assets. Energy-efficient systems can significantly reduce costs while improving comfort and predictability. According to the American Council for an Energy-Efficient Economy, strategic energy management programs have demonstrated 15–30 percent efficiency improvements across multifamily portfolios. Key design considerations include:
- High-performance HVAC and controls: Zoned and smart systems that respond to occupancy and weather patterns reduce energy use and extend equipment life.
- Efficient building envelopes: Quality insulation, thermal-break windows, and moisture management reduce heating and cooling loads. This is particularly relevant in Southern California’s varied microclimates.
- Metering and benchmarking: Submetering utilities and benchmarketing performance gives operators visibility into inefficiencies and helps maintain accountabillity.
When these elements are evaluated early and lifecycle costs are modeled during pre-construction, developers can weigh up-front construction costs against long-term operating savings. The result is lower operating expenses, improved resident comfort, and stronger positioning on sustainability metrics that increasingly influence investor and tenant decisions.
2. Select Reliable, Maintainable Materials and Systems
We consistently see lifecycle costs driven not by what a building costs to construct but by what it costs to maintain. Durable materials and accessible systems reduce maintenance frequency, minimize disruption, and stabilize capital budgets over time. Important focus areas include:
- Façade and roofing systems: Products with longer lifecycles and proven warranties reduce mid-cycle capital replacements.
- Mechanical equipment: Standardized components and modular assemblies simplify repairs and help control service costs.
- Interior finishes: More durable finishes in corridors, lobbies, amenity areas, and leasing offices lower repainting and replacement cycles.
By prioritizing materials and systems with documented performance histories, developers can better anticipate future expenses and protect NOI throughout the holding period.
3. Design for Serviceability
Buildings designed for efficient maintenance reduce labor costs and downtime. Poor access to mechanical, electrical, and plumbing infrastructure can increase operating expenses and delay repairs. Clear equipment pathways, coordinated riser spaces, and redundancy for critical systems help staff perform maintenance efficiently and minimize disruption to tenants. Service-oriented design principles include:
- Clear mechanical access: Adequate clearances, service aisles, and direct equipment pathways improve maintenance efficiency.
- Coordinated riser locations: Centralized and accessible utility chases allow faster troubleshooting with less disruption to residents.
- Redundancy for critical systems: Backup or easily swappable components reduce downtime and limit costly emergency responses.
Addressing serviceability during pre-construction ensures maintenance considerations are resolved before drawings are finalized. Over time, this translates into faster repairs, lower labor costs, and better resident satisfaction.
4. Integrate Technology to Streamline Operations and Limit Risk
Building on serviceability considerations, smart building systems can further reduce operating costs, improve efficiency, and protect the asset over time. When integrated thoughtfully during design and pre-construction, these systems reduce administrative burden, support conservation, and provide better visibility into building performance. Key examples include:
- Automated HVAC and lighting controls that adjust energy use in real time based on occupancy patterns.
- Submetering and tenant billing platforms that enable fair cost allocation and encourage responsible consumption.
- Water leak detection systems in critical areas that provide early alerts to prevent costly damage and minimize tenant disruption.
- Integrated property management systems that consolidate work orders, preventive maintenance, and tenant communications.
Implementing these technologies early allows developers to avoid costly retrofits and equips operators with actionable data to manage utilities, repairs, staffing, and tenant services more efficiently, supporting long-term NOI and asset value.
Implementing for Long-Term Value
Consistently, the greatest return is realized when these strategies are addressed early — before drawings are finalized and procurement begins. During pre-construction, experienced partners can support lifecycle cost analysis, coordinate system integration, and test assumptions about serviceability and long-term performance. When developers take this approach, the result is not just a more efficient building on paper. It’s a property that operates more predictably, supports and even enhances the tenant experience, and produces a more stable NOI profile over time.
Operating efficiency has become a fundamental driver of asset performance in multifamily and mixed-use projects. By focusing on energy-efficient systems, durable materials, serviceable infrastructure, and integrated technology, developers can meaningfully reduce controllable operating expenses while positioning assets for long-term resilience.
For developers evaluating design options or preparing projects for pre-construction, these considerations provide a practical framework for reducing lifetime operating costs and strengthening long-term performance. If it’s helpful, our team is available to discuss how these strategies can be applied to specific project conditions.