Developers are always looking to maximize the price per square foot of each apartment unit to strengthen their multifamily investment. This is one of the reasons why micro units are so appealing to developers, as they command a very high price per square foot in many markets across the country. Larger, ultra-luxe units also command a similarly high price per square foot, yet are less frequently deployed in new developments. To know which is a better unit to build, we must first look at the renter profile of each apartment type.
Who is renting micro units?
As rents have increased in metropolitan areas, renters are making a conscious choice to live in smaller apartments to be in the most desirable neighborhoods. Being centrally located to work, restaurants and nightlife is important to luxury apartment renters. Typically ranging from 250-400 square feet, a micro unit lifestyle is not for every renter. This renter profile is often a business professional who is splitting their time between cities and who prefers not to stay in hotels, or someone looking to pare down and live clutter-free. Budget-conscious renters who value location above all else are also attracted to micro living.
Often, for the same rental price in an alternative location in a city, a micro-unit renter could live in an updated, larger apartment. However, the mindset of a micro-unit renter is quality over quantity, and community-building amenities are crucial to micro apartments. When units get smaller, the common space becomes more important. Micro renters are seeking spaces to work and socialize. The most successful micro-unit developments offer great community-building amenities like full-service gyms, on-site food and beverage and co-working spaces.
Who is renting large, ultra-luxe units?
These apartment units range from 1,800 to 3,500-plus square feet and have a unique renter profile. The most common renter demographics for this unit type are empty-nesters coming from affluent suburbs, high-end professionals who want to retain anonymity by renting versus owning or families looking for larger space in an urban environment. Regardless, income levels are high, and this is a renter by choice.
To appeal to these renters, minimize the need to “upgrade” upon move-in. White-glove service is essential, along with custom-designed finishes, high-end chef’s quality kitchens and abundant living space. The empty-nester renters are typically coming from 5,000-plus-square-foot homes. Developers need to utilize the space to amplify the living room with dining area and include a master suite. The master suite must accommodate larger-scale furniture and provide impressive closet space and a “wow” factor master bath. Ideally, at least two bedrooms will comfortably accommodate a king-size bed.
This renter will pay for curated programming and service that allows them to have a hassle-free living experience. Building amenities are important, but the service provided by the management team, including concierge, resident service coordinator and highly professional door staff, is an attribute this renter demographic seeks.
Which floor plan is the better investment for developers?
When executed to appeal to the right renter profile, both options can command premium prices per square foot in today’s rental market. Location is always an important factor when considering the achievable rents, but in many cases, either approach can work.
To truly maximize rents in a micro unit, the developer needs to be as clever as possible with the layout, focusing on livability and functionality. Including practical storage, built-in desks, Murphy beds and unique ways to convert the space from entertaining to sleeping are essential to maximize the space and appeal to renters. The “innovation factor” becomes an important element of the micro unit. If you can hide your bed in the ceiling or it can convert into a closet or home office, this can help drive rents.
To maximize rents in an ultra-luxe unit, provide a curated rental experience that demonstrates a thoughtful floor plan and opportunity for renters to still enjoy the lifestyle they were accustomed to prior to living in a multifamily environment. The development, property management and leasing teams need to be mindful that this renter profile requires a higher level of personalization on all fronts. It’s not uncommon for a renter to hire an interior designer to make their unit feel more like home. Be prepared to accommodate any requests such as custom paint, chandelier installation and ability to affix heavy safes in closets. Common areas such as the lobby, amenities and residential corridors should feel equally luxurious, so investing in elevated finishes on the penthouse-level elevator vestibules and entrances to each residence can be a value-add as well. Parking is also critical to this renter base. A private, enclosed, temperature-controlled reserved parking environment with direct access to the residential floor is very attractive. Be prepared to offer more than one space in a convenient location within the garage to each unit.
For developers looking to maximize the price per square foot of each apartment unit, both micro units and larger, ultra-luxe units are appealing floor plans. Both command the highest price per square foot in many markets across the country. To achieve these rents, it is important to appeal to the unique renter profiles of both types of renters.