Recent highly touted commentators and quoted articles in the architecture and consumer press have broadcast a trend to smaller apartments. Features in The New York Times, Multi-Family Executive and Apartment Guide, for example, have all reported shrinking square footages for units in new developments. Reasons cited are seemingly obvious (as total development costs rise, individual units will need to shrink to hit palatable lease costs) or self-described as insightful (millennials are looking for crash pads in hip areas rather than traditional floor plans). While attention-grabbing, at FitzGerald we have seen our clients and their markets maintain an appetite for generous units, and feel that these articles don’t reflect the Chicago market we observe and design for.
In fact, when surveyed over periods longer than a single cycle, several of the same data sets indicate that unit sizes have actually increased.
A survey of our own portfolio of apartments designed over the last six years for primarily urban and in-fill neighborhoods supports our thinking that average apartment sizes have either plateaued or perhaps may be growing. In any event, market niche demand-and-response remains the prime driver of apartment sizes in Chicago ” and these sizes necessarily vary by target tenant profiles.
For example, ten properties comprising more than three thousand units designed by FitzGerald between the years 2006 through 2013 for the private sector market shows an average size of 790 square feet. Comparing year-to-year, the units on average have not gotten any smaller. Tellingly, there is little variation in average unit sizes regardless of configuration or bedroom count; and very little change to space allocations whether adaptive re-use loft conversions or new construction.
We also posit that the shadow market of thousands of Chicago renters occupying units originally designed as condominiums will grow accustomed to their space and won’t be eager to move to smaller quarters, away from the desirable neighborhoods with high ownership. The wave of new apartments still to come will keep rents in check and when combined with tight mortgage underwriting standards, the rental market for condominiums might very well be stable and strong.
DEMOGRAPHICS WILL ALSO PUSH UNIT SIZES UP
McKim Barnes, Senior Vice President and head of Research at Chicago real estate firm Draper and Kramer, recently anticipated that renters aged 65 or older will be the fastest-growing tenant segment. At a presentation to the Midwest Lenders Conference in Chicago, Barnes said, “The Boomers are turning 65. By 2020, the emblematic renter will be someone turning 50.” Barnes predicted an annual increase in this age group of about 240,000/year. “Owners and developers of multi-family rental housing should give greater consideration to the aging of their constituency.” While increasing numbers of seniors will be downsizing, we find it hard to countenance that apartment sizes will get much smaller and still be attractive to this segment.
The so-called trend toward smaller units for now, is at most a marketing discussion. “Some developers are now looking to diversify product type in an attempt to find new underserved niches in the market” says Gail Lissner, CRE, SRA of Appraisal Research Counselors. Ultimately, it remains a question of demand in highly specific sub-markets – markets which have yet to be represented by significant numbers in Chicago.