The big news about small apartments: people are willing to trade size for location
TreeHugger has shown a lot of tiny apartments (and our founder Graham Hill has built a business around them). Reading the comments on some of them, it appears that most of our readers think it's nuts. But a new study by the Urban Land Institute looks at the projects that have been built to date and comes to some interesting conclusions.
Their definition of a micro apartment is one under 350 square feet with full bathroom and kitchen. They found that there is high demand for the units:
The appeal of micro units is largely about economics, but place and privacy are all part of the equation. Most respondents interested in micro units are willing to consider them in exchange for a lower monthly rent (approximately 20 percent to 30 percent below that of a conventionally sized unit), a highly desirable (typically authentic, urban/urbanizing, walkable, trendy) location, and the ability to live alone.
The study notes that it costs more to build small units, but they get a significantly higher rent per square foot. However the total rent is still cheaper. In what might be bad news for those selling these as condos, the turnover is higher than it is in larger apartments. That's because the market skews young and single.
The target market profile for micro units is predominantly young professional singles, typically under 30 years of age, with most under 27 years of age, trending slightly more male than female. Secondary segments include some couples and roommates, some older move-down singles, and pied-à-terre users.
Some developers are worried that it might be a flash in the pan; one interesting approach that some are taking is to plan ahead, designing their buildings so that they can be converted down the road if the market changes.
The study also found that there have to be amenities outside the unit, common areas or lounges where occupants can entertain larger groups. The city may be your living room when you are in the right location, but it's nice to have a space of your own.
The study concludes that design really matters.
Many of these smaller units are designed and configured to feel larger to potential renters than older conventional units by virtue of higher ceiling heights, larger windows, built-in storage, and in some cases, flexible furniture systems. The evidence from the market indicates that smaller units tend to outperform conventional units, they tend to have higher occupancy and achieve significant rent premiums.
They are not sure if it is a real thing yet.
Still unclear is whether this performance is driven by the relatively limited supply of these smaller units on the market, or whether a sizeable, and perhaps untapped, segment of renters is willing to make the tradeoff and pay considerably more per square foot rent in exchange for highly desirable locations, better community amenities, the ability to forgo a roommate—or perhaps some combination of these factors.
I keep thinking about the huge crowd of baby boomers who are the main audience in those theatres and restaurants in the desirable locations, and the demographic bulge of millennials, many of whom will never be in the kind of jobs where they can make a down payment. I suspect that this market will grow like mad.
Download full report here.