Most commercial real estate teams build next year’s budget the same way every year: pull the current year’s actuals, apply an escalator, adjust the obvious outliers, move on. For most of the last five years that shortcut was close enough, because every expense line was moving the same direction.Commercial property premiums fell 5.5% in the first quarter while liability climbed and Maryland reassessed commercial property up 11%. For the first time in five years, the expense lines are moving in different directions, and last year’s assumption set will not survive contact with 2027.
That stopped being true in 2026. Five major expense categories moved independently inside a single twelve-month window, and two of them reversed direction outright. Here is what changed, what a blanket escalator now costs you in a reconciliation, and what to fix before the cycle gets away from you.
For most of the last five years, budgeting the expense side was directionally simple. Everything went up. Apartment benchmark data from Income/Expense IQ, the joint program from NAA, IREM and BOMA, shows insurance costs per unit climbing from roughly $502 in 2021 to $777 in 2024, a 55% jump in three years. Payroll and administration rose about 20% over the same stretch. Repairs and maintenance rose nearly 28%.
When every line moves the same way, “take last year and add a few points” is a defensible shortcut. Deloitte’s 2026 commercial real estate outlook, built on responses from more than 850 executives across 13 countries, found 68% expecting higher expenses. Most folks budgeted accordingly, and most folks were roughly right.
That correlation broke this year.
The Council of Insurance Agents and Brokers’ Commercial P&C Market Index for the first quarter of 2026 recorded an average premium decline of 1.2% across all account sizes, the first overall decline since the third quarter of 2017. Underneath that average, commercial property came in at negative 5.5%, workers’ compensation at negative 3.7% and cyber at negative 3.5%, while commercial auto rose 5.8%.
USI Insurance Services’ midyear outlook, released June 3, 2026, put numbers on the property side: noncatastrophe-exposed accounts down as much as 10%, catastrophe-exposed accounts down 5% to 20%, and shared and layered programs down more than 40% on certain risks. In the same document, primary general liability ran flat to up 12.5%, umbrella and excess flat to up 15% for middle-market accounts and up to 20% for large ones. USI expects general liability to rise another 2.5% to 10% in the second half.
Your renewal is still your renewal. Loss history, geography and program structure will move your number more than any market average. The point is not that insurance got cheaper. The point is that the direction reversed on one half of the line and held on the other, so the assumption you carried into last year’s budget is now wrong in two directions at once.
Maryland’s Department of Assessments and Taxation mailed its Group 2 reassessment notices on January 2, 2026, showing a 12.7% average increase statewide and an 11% increase on commercial property, with every one of the 23 counties and Baltimore City posting gains. New York City’s tentative assessment roll for fiscal 2027, published January 15, 2026, raised Class 4 commercial market value 4.3% and billable assessed value 5.8%. Office assessed values rose 4.2%, retail 5.9% and hotels 7.1%.
The Bureau of Labor Statistics Employment Cost Index released July 31, 2026 showed private-industry compensation up 3.3% year over year, wages and salaries up 3.1%, total benefits up 3.8% and health benefits up 6.0%. Compensation in real estate, rental and leasing rose 2.7%.
The June 2026 Consumer Price Index put electricity 4.0% above the prior year and piped utility gas 3.0% higher.
Five categories, five different stories, in a single twelve-month window. One escalator describes none of them.
An expense assumption is not a private modeling exercise. In a recoverable expense structure it becomes a number you bill.
Over-budget an expense and you over-bill the estimate all year, then hand money back at reconciliation. Under-budget one and you carry the shortfall through the year before sending a true-up invoice that lands on a tenant who was never warned, and in some leases you may run into a cap or a gross-up ceiling that leaves part of it uncollectible.
This year that risk is unusually easy to trip. A team that carries last year’s insurance escalator forward will over-bill the property portion and under-bill the liability portion inside a single line item, and the two errors will not cancel cleanly. A team that leaves the tax line flat in a reassessment year will under-collect for twelve months. Neither one surfaces as a spreadsheet error in December. Both show up as cash timing, and as a conversation with a tenant.
The practical move is to stop treating insurance as one budget line, and to stop treating “last year plus escalation” as an assumption. It is an average of assumptions you have not written down.
The portfolio version of this problem is worse than the property version.
A property in a Maryland reassessment group and a property in a market on a different cycle need different tax assumptions this year. A Gulf Coast asset and an inland asset need different property insurance assumptions. Apply a single portfolio-wide escalator and you average away exactly the variance you were trying to see, then discover it one property at a time between March and August.
Rolling the portfolio up is useful. Rolling the assumptions up is not.
Budget season rewards specificity this year more than it has in a long time. If you used the deadline-free stretch earlier this summer to clean up your data, this is where that work pays off. The teams that will be closest in March are not the ones working the most hours in August. They are the ones who wrote five assumptions instead of one, and can point to where each came from.
Kardin has spent 30 years on this single problem. Kardin Portal is a purpose-built budgeting engine that works alongside your accounting system, with per-account budgeting methods, recovery calculations that update when the underlying expense line changes, and portfolio rollups that keep each property’s assumptions intact instead of averaging them away.
If your 2027 cycle is starting this month, it is worth seeing what that looks like on your own numbers. Request a walkthrough and we will use your expense structure, not a demo file.