Market Outlook

Apartment Size is Decreasing: Does it Matter?

September 7, 2017

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Does The Decrease In Apartment Sizes Affect Landlords?

As new apartment buildings and multifamily housing are built, the units on the inside are changing drastically. Since 2006, the national average for the size of a single apartment within an apartment complex has been slowly decreasing. In 2019, the average size of an apartment was 882 square feet, which represents a 5% reduction compared to the average in 2009. Surprisingly, even though the amount of space offered to tenants is shrinking, the occupancy rate of these apartments has continually risen, giving investors more opportunity to generate rental income and cash flow. Rents have continued to increase as well, by 28% over the same time period.

Decreasing in Size, Not Demand

The United States has the largest recorded average apartment sizes around the world, but nationally, newly constructed apartments are shrinking in size year after year. Studio apartments are seeing the most significant reduction, with an 18% decrease in size, dropping from an average of 614 square feet in 2006 down to just 504 square feet in 2017.  One may expect such a drastic difference to result in significant push-back from renters and, as a result, higher vacancy rates and more units left unfilled. But to our surprise, the size of the unit doesn’t seem to matter all that much. In fact, a 2016 study conducted by Zillow found that only 12% of renters look to size as a top amenity. Most renters focused on staying within a budget (75%) or renting in a preferred location (55%).

This inelastic demand for studio apartments is likely due to the demographic renting them.  Occupants of studio apartments in particular typically live a mobile life and care about location more than size or having a home with its own entrance. In fact, these smaller apartments enable these individuals to live in a location they wouldn’t be able to afford otherwise, such as in an apartment with more bedrooms or a single family house. Constructing studio apartments with less square feet provides more budget for important amenities like superior location.

Additional Reading: Renting to a new generation: Are you ready?

Apartment sizes have been decreasing across the board since 2006; yet still, we have seen a gradual decrease in the national rental vacancy rate. In 2009, the rental vacancy rate was as high as 11.1%. This has shrunk more than 4% to a Q1 2017 rate of just 7%. There are certainly many factors contributing to this decrease, but it would appear that the reduction in apartment size (counterintuitively) is not one of them.

The Cost Of Living Smaller

The national average rental rate was recorded in 2016 as $1,052. Rent costs have been breaking record after record since then, and they don’t seem to be slowing down anytime soon. From the perspective of a young, modern renter who just started a job out of college, the asking rate for a studio apartment would be more appealing than that of a one bedroom. For example, if your dream is to live in Miami, Florida, you’ll be paying around $2,000 for a one bedroom apartment (and much more for single family homes) but would have to pay only $1,500 for a studio apartment with half the room but an even better location.

Additional Reading: Backcasting: Analyzing the Past for the Future of Real Estate

Tiny houses and micro apartments have been trending around the world for years and are beginning to make an appearance in the United States.  Since 2006, the average apartment size has dropped from 1,015 to 889 square feet. Understanding the priorities and needs of your tenants (or potential tenants) is key when purchasing, developing, or redeveloping any multifamily investment property. Keep apartment size in mind as you evaluate your own portfolio.

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