Small Apartment Properties Pack Value for Money with More Space in Urban Adjacent Locations
In their unit mix, small apartment buildings are more specialized in bigger units compared to large properties, while also being more affordable. Renters can find value in small apartment properties, as examined in this update.
Unit Size Mix Varies by Asset Class
When it comes to product specialization, small apartment and large apartment properties cater to different niches of the market, with the former being more attractive to larger and more diverse households, as discussed in our recent market update.
Consequently, the unit mix in small and large apartment buildings varies significantly, with the unit distribution skewed toward more spacious units in small properties.
As shown below, approximately 53% of all units in small properties included two or more bedrooms, with two-bedroom units alone representing 44% of total inventory1.
In comparison, studios and one-bedroom apartments make up a dominant 65% share of large property units, catering to single renters and two-person households. Of this share, one-bedroom apartments comprised half of all units in the asset class.
Two-Bedroom Units in Small Apartment Properties Pack Value for Money
While small and large buildings have unique unit-size profiles, data on market-clearing rent levels indicate close competition between the predominant product type in each asset class.
As shown below, the average rent for two-bedroom units in small properties in 2016, estimated at around $1,100, was nearly identical to the average rent for one-bedroom units in large properties.
At the same time, average rents in small properties, typically located in downtown-adjacent, urban-core areas, were significantly lower and more affordable than units of the same size in large properties, which command high markups for amenities and downtown location.
For example, two-bedroom units in large properties commanded the highest premium, with a markup of nearly 35% over small buildings. Studio and one-bedroom units, which form a bulk of the current large property supply glut, registered a markedly lower premium of roughly 20% across asset classes.
For property managers and investors, small buildings with bigger units offer a competitive advantage in urban core areas when compared to higher premium large properties. At current markups, renters with deeper pockets might just opt for single-family home rentals, albeit in suburban locations.
1 All data is sourced from the American Community Survey (ACS), unless otherwise stated. ACS statistics are sample-based estimates of the compositional profile of the total population in the given year of data collection, and include a margin of error.