Micro-Units: Coming to a City Near You

Oct 25, 2016

Today’s renters are more willing than ever to forego space in favor of lower rents and a trendier location. A little bit of clever design on the part of apartment developers and building architects can go a long way towards creating an attractive, comfortable and efficient floor plan for their tenants.

What is a Micro-Unit?

As the Urban Land Institute points out in their substantial research paper on the topic, there is no set definition or square-foot-range than can be used to define a micro-unit. Geography plays a big part. In New York, for example, a micro-unit might be 300 square feet. In Dallas, it could be 500 square feet.

A working definition, according to ULI, might be: “a small studio apartment, typically less than 350 square feet, with a fully functioning and accessibility compliant kitchen and bathroom.”

To put this definition in perspective, a studio micro-unit is larger than a one-car garage, but smaller than a two-car garage. If you can’t imagine living in such a small space, the video below demonstrates how a couple managed to fit a gym, home cinema, large bathtub, storage and cat-friendly spaces into a 309-square-foot unit in central Hong Kong.

While the unit above is certainly innovative, it is not indicative of the typical micro-unit ownership structure (most are being built as rentals), nor the typical inhabitants (most are single). Let’s now examine how demographics are contributing to smaller unit footprints.

Millennials and Micro-Units, a Perfect Match

At 62.9% at the time of writing, the U.S. homeownership rate is at it’s lowest point since the Census Bureau began keeping track in 1965. A combination of demographic and economic factors are converging to create a new era of housing with a greater focus on renting. Yes, relatively stagnant wages and increasing student debt — did you know the average 2015 graduate walked off stage with a diploma and $35,051 in student loans? — are making it more difficult to save for a home mortgage down payment.

On the other hand, more Millennials are choosing to rent due to the live, work, and play lifestyle apartment living offers in many cities. Delaying marriage, a life event that is often followed with a home purchase, is another factor contributing to apartment demand. Consider that 57% of the population was married in 1990. By 2014 that figure had fallen to 48%.

With more affordable rents and the ability to be in the middle of the action, it is no surprise that the typical micro-unit renter is a young professional single, according ULI’s research.

They are typically first-time renters who have not accumulated much “stuff” yet and are, therefore, completely comfortable with limited space. Many consider these units “launch pads” for new careers and lives in a new city or place. Micro-unit occupants are described as social animals, but ones who do not want or need to socialize in their units…micro-unit occupants trend slightly more male than female, presumably because women are generally more interest and tolerant of roommates.

Loved by Renters and Landlords

Given the market demand discussed above, it should come as no surprise that the general size of multifamily rental units has been decreasing in recent years.

Renters love micro-units because they can offer luxury finishes with a utilitarian layout that doesn’t break the wallet. Landlords love them because it allows for more bedrooms and renters in an asset.

A look at the price-per-square-foot achieved within various unit sizes during a recent development cycle demonstrates the power of small units.

Units with less than 600 square feet carried the highest price per square foot in every U.S. region aside from the South.

Given the relatively new nature of the term, hearing ‘micro-units’ might evoke the image of a modern apartment tower or futuristic capsule hotel development. Some apartment owners, however are working to revitalize the existing building stock with modern design and architectural elements.

ArborCrowd deal sponsors Stone Street Properties and AMAC specialize in repositioning older New York City properties that have out-of-date unit floor plans and good bones. This involves traditional micro-units – taking a small studio and making it an extremely efficient junior one-bedroom – or adding additional bedrooms to two- or three-bedroom units. Luxury, condo quality finishes come standard with the renovation plans. Here’s an example of a two-bedroom to three-bedroom conversion taking place within the Clinton Hill Multifamily Portfolio.

“We take units that are not necessarily laid out efficiently and we come up with design that utilize every single square inch of space,” says Jeffrey Kaye, CEO and Founder of Stone Street Properties. “If that means moving the kitchen from one end of the apartment to the other in order to open up more space for an additional bedroom with a window in it, we’ll figure it out and we’ll do it. That’s how we create tremendous value within the confines of a unit.”

For more information on the Clinton Hill Multifamily Portfolio — or to be part of this exciting repositioning — create an account with ArborCrowd and view the entire business plan.