In today’s economy, every dollar counts. That is especially true in multifamily real estate, with the competitive rental market experiencing unprecedented growth over the past two years. There is a trend toward smaller units, even micro-units, especially in downtown and urban areas.
Financing, Geography and Demographics Determine the Unit Mix at New Multifamily Developments
Land is increasingly expensive. During the Great Recession, new development was extremely limited—almost nonexistent. Investors had lost their appetite to put money into developing all forms of real estate. Existing real estate was being disposed of for pennies on the dollar. By 2011, institutional investors were returning, but they were stipulating that they would invest in only the highest-class property in the best urban, infill locations.
Land in urban locations is typically small parcels and expensive. With such demands, apartment developers found urban locations driving up their cost basis. The next problem was how to create a density of units to drive more rent. Architects began to design mid-rises with up to nine floors. Up until this time, mid-rises were commonly four to five stories. In addition, unit mixes that typically included 45 to 50 percent one-bedroom apartments now offer 60 to 65 percent one-bedroom and efficiency apartments.
ApartmentData.com President Bruce McClenny notes in this Raleigh/Durham Business Journal article:
“Interest in one bedrooms has surged since the Great Recession, in part because developers can get a higher rate per square foot on one bedrooms and thus squeeze more dollars out of the space. And that’s vital in areas such as downtown Raleigh, where the price of dirt is high.”
Enter Millennials. Graduates caught during the Great Recession had trouble finding jobs. Many stayed home or doubled/tripled up with friends between 2008 to 2010. As the economy slowly improved and created more jobs, Millennials found the abundance of one-bedroom apartments at a reasonable price, unleashing the pent-up demand from their previous housing choices. This is where the new development mix met the perfect constituency. McClenny adds, “I think they got lucky when millennials came around and were perfect for that setup, the smaller one-bedroom(s)….”
Decreasing square footage means location and amenities matter more than ever. With a significant number of smaller units in downtown metro areas, multifamily properties must offer a robust suite of amenities and more common areas to attract renters. Centrally located properties also can benefit from walkability to nearby community features such as shops and restaurants.
Similar Apartment Market Trends in Texas and the Southeast
The development of multifamily buildings with a higher percentage of smaller units in urban areas follows trends in states, including Texas, where a growing number of people are moving to the state. ApartmentData.com’s data highlights this trend:
- Two- and three-bedrooms make up about 6 to 7 percent of supply in Texas, versus 12 to 13 percent in North Carolina, Georgia, and Tennessee
- Similarly, the average size for a one-bedroom is smaller: 880-890 square feet in Texas versus 950 to 1,000 square feet in North Carolina, Georgia, and Tennessee
Use ApartmentData.com’s Tools to Inform Your Property Research
ApartmentData.com’s Competition Radar with Price Analyzer Plus is a cutting-edge analytical tool to report on the performance of such floorplans. Use ApartmentData.com tools to create a winning mix of units at your new property. Research to determine the best combination of units and pricing for a new development starts with ApartmentData.com.
Our Competition Radar, with in-depth floorplan analysis, compares similarly sized floorplans to a relevant, expanded group of nearby properties. The ability to review the different sizes and types of floor plans and the range of prices charged for each floor plan gives you the knowledge to determine the best mix of floorplans and prices accurately and efficiently for your project. Our Competition Radar platform also includes revenue management and floorplan price guidance.
In April, we here at ApartmentData.com noted on our blog that 2021 saw unprecedented absorption and continued high demand in the multifamily industry. Stay tuned for the most accurate information on 2022 data and trends.
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