An interesting thing is going on with new or re-purposed rental homes and apartments across the vast majority of markets: They are getting progressively smaller and smaller. Not only are rents rising, yet on top of that the square footage obtained for median rent is significantly decreasing at the same time.
Importantly, this even takes into account price increases / inflation. Median rent represents the middle value of all rents on a market, with half of the units below that median rent value and half above that median rent value. Median rents are of course higher now than they were 5 years ago, though theoretically people would pay the increased higher median rent for the same type or size of apartment.
However, that is not the case. HotPads recently performed an in-depth analysis and determined that median rents have risen while the square footage that those median rents obtain has steadily decreased.
This has been caused by many things. New construction properties tend to have smaller units than historical average unit sizes. In-fill and urban properties do this to maximize their unit count within a small footprint. Stand-alone rental homes are smaller to keep costs down relative to very high and increasing construction costs. Also, renters have become willing to pay more for smaller apartments and homes that are in better locations. Increased value has been placed on proximity to work, walkability to attractions, ambiance & lifestyle, and new amenities. These shifts in priorities have convinced many people to accept smaller unit sizes than in the past.
For new apartment buildings, the decreases in unit sizes have been partially offset by the addition of shared property-wide amenities and common area facilities. This includes increasingly popular attractions such as reservable party rooms and conference rooms, plus open access facilities such as small gyms, view decks, lounges, and hang out or play areas.
Nationally over the past 5 years, a median priced rental has decreased in size 225 square feet. That is the equivalent to an entire 14’x16′ living room or almost two 10’x12′ bedrooms! In very expensive markets such as San Francisco, San Jose, and Sacramento, the decrease in a median priced unit has been even more pronounced at 475 square feet less space. Seattle units have shrunk 400 square feet over that time.
All of these new trends actually create opportunity for purchasers and operators of existing older properties with classic larger sized units. Why? Some people still need a private office, craft room, inside storage, guest room, or other reasons for not feeling too cramped. And they can’t get it for a reasonable price with the new product and trends out there. Yet they can get it from your older property.
This is a distinction and advantage that can be actively marketed. While new product may tout fancy gyms and common areas, older product can tout better bang per buck on the place the renter spends most of their time: in their own home.
This can also help convince a “Class A” renter to consider “Class B” properties, and similar for B to C conversions. And for those investors who upgrade their older properties with new amenities, this can be a big differentiator since they can offer both amenities and comfortable living space at the same time.
So, just because the new trends are pointing to smaller units, don’t look at that as a detriment for older properties. It is generally not that renters literally want smaller space. They just generally don’t want to pay the premium for larger space. Investing in existing rental properties with larger average unit sizes can bridge that gap and increase demand plus revenue for your property.