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Apartment Developers Increasing Unit Sizes For New Projects In Response To Pandemic

Renters have gravitated toward larger apartments as they have spent more time at home over the last year, a trend that is beginning to influence the way developers think about unit sizes in their future projects.

An apartment in Mill Creek's Modern on M building in Southwest D.C.

Before the coronavirus pandemic, new apartment projects had been trending toward smaller units, as many renters wanted more affordable options and cared more about neighborhood amenities than unit size. But now those neighborhood amenities have been closed or limited for nearly a full year, and between working from home and staying in at night, renters have spent much more time in their apartments than they did before the pandemic.

"Micro-units was the buzzword. It's never going to happen again," Morgan Properties principal Jason Morgan said Jan. 28 on the Bisnow Multifamily Annual Conference digital summit. "That really has shifted, and now it's more about space."

Mill Creek Residential Executive Managing Director Sean Caldwell said he had begun to see a shift toward larger units before the pandemic, driven by empty nesters renting apartments. 

"You go into the pandemic and that acted as an accelerant to allow the opportunity for people to look for more space," Caldwell said. "So it's really multiple things, not just pandemic-driven, that is having us look at average unit sizes that are slightly bigger."

Caldwell said studio units tend to perform well when apartment demand is strongest, with the competitive renter market driving cost-conscious people to settle for smaller, cheaper units. But that is not the case today.

Class-A Apartment absorption in D.C. last year was down 75% from 2019, and the city's vacancy rate rose from 4.9% to 10.3% over the course of 2020, according to Delta Associates. Rents for Class-A apartments across the D.C. Metro area fell by 10.2% last year, the largest decline Delta Associates has recorded since it began tracking the market in the 1980s. 

"There are many deals, even in millennial locations, where they're having trouble moving their studios at all right now because of the pandemic," Caldwell said. "If I'm doing a mix today, I'm certainly going to have less studios than I would have a year ago, and I would look at more two-bedrooms and contemplate three-bedrooms in the right location."

Mill Creek has one apartment project in the planning stages in Northwest D.C. for which Caldwell said it is increasing the unit sizes. He expects the average apartment will be around 1K SF, with an emphasis on two- and- three-bedroom units. 

Projects that delivered during the pandemic didn't have the luxury of changing their unit sizes.

"Once you make your floor plan mix, it's very difficult to make any changes. It's extremely costly — virtually impossible. " J.P. Morgan Asset Management Managing Director Allina Boohoff said on the digital summit. "There have been plenty of situations where you make the decision that at the point in time, [the market] is short on studios, but by the time you deliver, everybody else delivered studios, and you can't lease them."

An apartment at WashREIT's Trove building in Arlington, Virginia

Last year, WashREIT welcomed its first residents to its new 401-unit apartment building on Arlington's Columbia Pike corridor, with the project delivering in two phases in February and October. 

The developer designed the building, branded as Trove, with more studio apartments than its typical project because it saw that the submarket was lacking the smaller units. But then the pandemic began to impact the market, and renter demands shifted. 

"When I look at my lease-ups, the one-bedroom and larger units are flying off the shelf and the studios are sitting," WashREIT Managing Director of Multifamily Ed Murn said on the summit. 

Murn, in an interview with Bisnow Friday, said 25 of the building's 49 studios have now leased, adding that "it's not killing us."

He said WashREIT isn't moving away from studios for future projects because the units are attractive to renters looking for affordable options. But he said he does expect the average size of new apartments will be larger than it was before the pandemic. 

"The pendulum had swung so far to smaller units," Murn said. "I do think that the square footage is going to be rethought by some developers and you'll see the average square footage go up."

Clockwise from top left: JPMorgan's Alina Boohoff, CBRE's David Webb, WashREIT's Ed Murn, EYA's Aakash Thakkar, Mill Creek's Sean Caldwell and Neighborhood Development Co.'s Adrian Washington.

But increasing unit sizes comes with drawbacks for developers. Having larger units means they can fit fewer units in the building and will bring in less total revenue. Studio units, while the cheapest for renters, are cash cows.

"The challenge everyone's going to tell us is the cost and being able to get that pro forma to work, because the studio units pay the highest price-per-square-foot and help the overall pro forma," Murn said on the summit. 

Part of the reason developers had been moving toward smaller units was so they could maximize revenue as construction costs have been rising, Moya Design Partners Design Principal Federico Olivera Sala, an architect who works on apartments, said in an interview. 

"Units are more price-driven, and when the cost of construction goes up, they tend to get smaller and smaller, not bigger and bigger," he said. 

Hickok Cole Director of Housing Laurence Caudle said construction costs haven't decreased during the pandemic, so cost is still a driving factor for unit size decisions. 

"It seems that construction costs haven't really gone down in all this, so that is still a huge financial factor as clients are planning these buildings," Caudle said. "They need a certain number of units to make the numbers work."

Sala said he doesn't expect a major change in unit sizes, but he thinks the percentage of studios within new buildings may come down from around 15% to around 10%. 

"What they're doing now is junior one-bedrooms as an alternative for studios," he said. "That bedroom typically doesn’t have a window, but at least you have your own space you can enclose, and keep your messiness under control, and then you have your living room and public area of the unit more tidy."

Neighborhood Development Co. CEO Adrian Washington said on BMAC he thinks the long-term effects of the remote work movement will push developers to increase unit sizes. 

"I think people have seen the advantages of working from home and will do it a bit more than before," Washington said. "There will be subtle shifts in adding more space, more outdoor space. That will be with us for the long term."

Even developers that have already delivered projects, or those who don't want to increase unit sizes for cost reasons, are finding ways to cater to remote workers. 

A built-in desk for remote work in Jefferson Apartment Group's J Linea building in D.C.

Caudle said he is still designing new projects downtown with small units, because some developers can't afford to reduce their unit count. But he said unit size has been discussed much more frequently during the pandemic, and those developers that decide against larger units are finding ways to make their apartments more flexible. 

"You can't afford to build bigger units, so we're just going to have to make the current square footage we use look bigger with more flexibility, and be thoughtful about how we space plan these units," Caudle said. 

At Jefferson Apartment Group's J Linea, a building Hickok Cole designed that delivered in June, units come with built-in desks for remote workers. Caudle said the firm is also designing units with dedicated spaces for home workout equipment. 

"When we space plan the unit, the way we position kitchens, or the living room area or bedroom, we're identifying a place where you could put the yoga mat, where you could put the stationary bike, and the unit will still lay out and live with more flexibility," Caudle said. 

Urban Atlantic Managing Partner Vicki Davis said on BMAC that her company is looking at ways to rearrange units to cater to remote workers, such as turning walk-in closets into home offices. 

"We're experimenting with our product to see what's going to work in the future," Davis said. "A lot of people are working at home, and there are a lot of opportunities for how do we create more flexibility in the space so people can use that creatively."