Occupancy rates are on the rise for the nation’s smallest apartments, according to a recent CoStar Group analysis, outperforming larger units. This is especially true in high-demand submarkets where soaring rental rates and strong job growth lead renters to prioritize location over total living space.
Overall, demand for rental housing has outpaced supply in 2019, and the average apartment rent has been 24% above pre-recession highs. At the same time, total student debt has risen to $1.49 trillion, and household incomes have only risen by 2.9% each year—far from enough to keep up with the pace of rent growth, at 4% each year.
The national average vacancy rate for the smallest one-bedroom apartments has fallen by 40 basis points since 2015, or 30 basis points below the vacancy rate for the largest. In core submarkets, the spread is wider, with the vacancy rate for the smallest apartments falling 120 basis points over the same period.
Given this trend, and developers’ desire to fit more units, the size of new one-bedroom apartments has declined significantly over the past decade, down 6.5% from 800 square feet in 2007 to 755 in 2018. In urban submarkets, one-bedroom sizes have fallen 9.4% in the same period.
“As rent levels continue to increase in many major metropolitan areas across the country, and as these areas continue to benefit from outsized population growth relative to the nation as a whole, renters who desire to live in a major city will likely continue to seek out smaller apartments that will allow them to do so,” say Robin Trantham, CoStar consultant, and Joseph Biasi, CoStar analyst.