Apartment construction hasn’t stopped for the coronavirus pandemic — but it has changed the size of apartments, particularly in U.S. cities.
The average size of new urban one-bedroom apartments have gotten bigger since March, as homebuilders react to renters spending more time at home, according to a new study by CoStar Group, a Washington, D.C.-based commercial real estate data and analytics company.
“With the increase of working from home, I expect to see developments incorporating… larger apartments,” said Doron Pergament, owner of Blue Communities, a New York-based apartment owner and operator.
By the third quarter of 2020, one-bedroom apartments in urban areas increased to an average 735 square feet, up from 720 square feet in March — the largest size since August 2018, when one-bedroom apartments were an average 737 square feet, according to the study.
“[Developers] react not by adding new product [bigger apartments] but by delaying new starts [of smaller apartments]. Buildings with particularly small apartment footprints are probably being held up [delayed by the coronavirus pandemic] more than others,” said Andrew Rybczynski, managing consultant at CoStar Advisory Services, explaining that developers are stalling completion of buildings with smaller units because of reduced demand.
Ballooning apartment sizes are a reversal of a decade-long trend. The average one-bedroom apartment size had been steadily decreasing for a decade because it actually brought in higher profits for landlords. The average one-bedroom was 758 square feet in January 2010. Renters paid more per square foot before the pandemic, but their overall rent bill was lower, helpful for renters on a budget. Meanwhile, landlords made more money per square foot and were able to squeeze more apartments into buildings and charge a higher price per square foot.
“The trend has reversed. We were getting a greater and greater premium on small apartments, and now we’re getting less and less. And that’s a change since the pandemic — basically since exactly March 15. Developers are reacting to that,” said Rybczynski.
Urban apartment owners will need to find ways to become more competitive as Americans move to the suburbs to escape lockdowns and exposure to the coronavirus pandemic, as well as have more space and outdoor space. In part due to lowered demand for city living, urban rent prices dropped 0.67% in the third quarter of 2020 compared to the same time last year, while suburban prices got slightly (0.19%) more expensive, according to CoStar. That trend could continue even as the economy recovers from the coronavirus pandemic, according to experts.