Philadelphia Leads The Northeast In Micro-Apartments — But Perhaps Not For Long

When Alterra Property Group converted a vintage Center City office tower to apartments in 2015, the 60 micro-units in the Avenir at 1515 South Chestnut St. were a big hit.

Despite skepticism from lenders, “those apartments rented faster than anything I’ve ever seen before,” said Alterra Managing Partner Leo Addimando.

A decade later, tastes have changed among Philadelphia’s upwardly mobile tenant class — even as some tiny apartment landlords continue to successfully cater to a niche group of renters.

“The true micro-unit really struggled through Covid,” Addimando said.

Philly still leads the Northeast when it comes to the region’s existing micro-apartment stock, according to a StorageCafe report.

But competitors like New York City and Boston are poised to catch up as their pipelines balloon when it comes to the units defined as having 499 SF or less, said Yardi Matrix Manager of Business Intelligence Doug Ressler. Yardi provided data for the analysis.

Those units now account for 6.8% of the multifamily stock in 50-plus-unit properties across Philadelphia, the report found. That puts it ahead of New York City, Boston and Pittsburgh, where micro-units account for 6.5%, 3.5% and 3% of existing stock, respectively.

But those places all have Philly beat when it comes to the volume of tiny units under construction.

Micro-apartments account for just 6.5% of the pipeline in Philly, while the rates sit at 43.3% in New York, 49.8% in Newark and 56.2% in Boston.

Micro-housing is enjoying something of a national renaissance after falling out of favor two decades ago, which the StorageCafe report attributes to an affordable housing crunch “and urban lifestyles shifting toward minimalism and convenience.”

The West Coast is leading the charge, with 15% of units in San Francisco falling into the undersized category. Some East Coast cities are making them “an urban staple” the report states, but Philadelphia is not poised to be among them.

“To the extent that people spend more time working from home, a micro-unit can be emotionally and psychologically challenging,” said Addimando, whose company still owns hundreds of such units at LVL North, the Tidewater and the Avant. “You’re sort of staring at your bed all day.”

That is part of the reason there aren’t many micro-units under construction in Philly, but it’s not the whole story.

Philadelphia’s relatively affordable housing stock means affluent but budget-sensitive renters have lots of options at their price point, said Eclipse Development Partners co-founder Ryan Kalili.

If the rent for a new luxury one-bedroom apartment in Center City seems too high, they could take a micro-apartment in the same building, or they could find a one-bedroom in a 10-year-old building nearby for a similar price. If they were willing to live in an outlying neighborhood, they might even be able to get a whole row home for that price.

That’s why Eclipse won’t build units smaller than 450 SF and tries to minimize the number of studios in its new projects.

Those options are a stark contrast from the rat race in New York City, where Addimando estimated that young professionals make twice as much income but pay three times as much for housing.

Still, there are niche pockets of the Philly market where tiny apartments are in high demand.

“If I was looking at a deal in University City where we’re primarily targeting students, I think that’s different,” Kalili said.

There’s actually a waitlist for the 23 micro-units at 3737 Chestnut St., a Korman Residential Properties building located one block away from the University of Pennsylvania.

The 30-day leases utilized for the fully furnished apartments straddle a middle ground between traditional rentals and extended-stay hotels, said Korman Director of Operations Dawn Ewing.

“We include linens, pots and pans, towels, sheets,” she said.

Given the demographics of the neighborhood, many of the tenants are in school. Medical students are a particularly strong demographic for micro-units since they work such long hours and generally only sleep once they get home, Addimando said.

Patients receiving long-term care at University City hospitals are another prime source of tenants at 3737 Chestnut, Ewing said.

Micro-apartments are generally considered a budget option, but Korman actually markets them as luxury units. Their micro-units in University City go for $3,675 per month, while unfurnished one-bedrooms in the same building start at $2,700.

Korman’s tiny apartments in University City are 545 SF, which is slightly above StorageCafe’s micro-unit definition.

But the firm also owns micro-units in Casa Del Sol, a historic hotel in Haverford that was repurposed as an apartment building. The small apartments there, which start at 252 SF, have gained a lot of traction with divorcees.

“Suddenly single is very popular at Casa Del Sol,” Ewing said.

Before the pandemic, micro-apartments were a perfect fit for adaptive reuse projects. It was easy to fit small units between the immovable columns that hold up many vintage office towers.

But there are no micro-units or studios in Alterra’s adaptive reuse project at 1701 Market St., where the apartments listed start at just over 550 SF.

That doesn’t mean the developer is done building units that would fit StorageCafe’s micro-housing definition.

Alterra had success leasing up its new “junior one-bedroom” apartments, which Addimando said often come in at around 450SF.

“It is the post-Covid version of a micro-apartment,” he said. “It gives you some segregated living space.”