While still a minority of the nation’s rental stock, micro units have emerged as a viable housing option, particularly in dense, high-cost markets, according to a recent report released by the Urban Land Institute (ULI).

Since the market is still so relatively young, ULI sought to get a handle on the perception and performance of micro units, which it defined as a studio apartment about 300 to 450 square feet with a functioning, accessibility-compliant kitchen and bathroom. The ULI’s Multifamily Research Committee and its research partners analyzed data from more than 400 apartment communities and gathered responses from more than 3,500 renters.

A Growing Presence

Smaller spaces are indeed on the rise: The typical size of new apartments has shrunk from 995 square feet in 2002-2003 to 950 square feet in 2012-2013, according to ULI. Similarly, the number of studio apartments constructed in 2012-2013 rose to 6 percent of all new units built, up from just 1.8 percent a decade before. 

Units under 600 feet have also seen high occupancy rates and rent premiums, with average rents of $2.65 per square foot, which is 54 percent higher than the rates for 600- to 1,000-square-foot units and 81 percent higher than units measuring more than 1,000 square feet .

It’s difficult to draw definitive or wide-reaching conclusions about the demand for micro units, since they represent such a small portion of the market; there are far less of these units to fill, and operators can be more aggressive on pricing since there’s less inventory available. However, these high performance numbers show there certainly is a market for ultra-compact apartments.

Consumer perception of micro units is also fairly healthy, with 24 percent of renters currently living in conventional units indicating they would be interested in renting a micro unit. 

Unsurprisingly, the demographics with the most interest are young people, singles, and those currently living with roommates. Millennials are the primary target market, for various reasons: they’re less likely to have settled into a career and are more geographically mobile; they’ve demonstrated an interest in living in urban areas; they have less disposable income; and they haven’t accumulated as many possessions that require storage space. 

Creating Mass Appeal

Location and cost are the primary attributes that potential renters ranked as most likely to make them choose a micro unit. Lower rent, the ability to live in their desired location, lower utility costs, and the ability to live alone were the top decision factors. 

Most survey respondents indicated they would expect these units to rent for 21 percent to 30 percent cheaper than traditional studios. That’s consistent with what ULI’s research found to be the “sweet spot” for renters to choose micro units—priced approximately 25 to 30 percent below rents of conventional units and in line or below the cost of living in a larger unit with roommates.

To make these units livable, developers and designers must be mindful of design, as there’s no room for wasted space and standard-sized furniture and appliances. The inclusion of built-in furniture systems, such as updated Murphy beds or built-in seating with under-unit storage, was cited as “essential” by some micro unit developers that ULI surveyed. 

Other key considerations include tall ceilings to create a sense of volume, large windows to provide light and air that will make the unit feel more open, and a linear kitchen that includes smaller, but still full-sized, fixtures. 

Amenities also go a long way toward making micro units an attractive option. Community spaces should be extensive to compensate for small units; rooftop amenities, such as fire pits or catering kitchens, are increasingly popular, as is the inclusion of varied, digitally connected gathering spaces.