What is Submetering in Multifamily Real Estate?

What is Submetering?

Submetering refers to the practice of installing individual meters for utilities (like water, gas, and electricity) for each apartment unit within a property, rather than having a single meter for the entire building. This system allows the property management or utility provider to bill tenants based on their actual consumption of utilities rather than dividing the total cost among all tenants equally or including it in the rent. Here are the key aspects and benefits of submetering:

1. Fair Billing: Submetering ensures that tenants are only billed for the utilities they actually use, which is generally seen as a fairer method of utility billing. This can encourage more responsible usage of resources among tenants.
2. Encourages Conservation: When tenants are directly responsible for their utility usage, there tends to be a natural reduction in consumption, as tenants become more aware of the cost associated with their usage habits.
3. Operational Efficiency: For property owners and managers, submetering can reduce the administrative burden of averaging utility costs or including them in the rent. It simplifies the management of utilities and can help in identifying issues like leaks or inefficiencies in individual units more quickly.
4. Cost Recovery and Savings: Property owners can recover utility costs directly from tenants, which can make the property more financially efficient. It also often leads to overall lower consumption across the property, potentially lowering the property’s environmental impact.
5. Dispute Reduction: By providing clear, individualized utility usage data, submetering can help reduce disputes between tenants and landlords over utility charges, as each tenant’s bill directly reflects their consumption.
6. Market Competitiveness: Properties with submetering can be more attractive to prospective tenants who prefer to control their utility costs directly and appreciate the fairness of the billing system.

Submetering installations can involve upfront costs, but these are generally offset by the long-term benefits in efficiency, conservation, and tenant satisfaction. It's a common feature in newer multifamily developments and is increasingly being retrofitted into older properties as part of upgrades or renovations.