Thinking Outside the Box: How Today’s Developers Are Lowering Apartment Costs

October 2, 2017

Skyrocketing apartment costs are no longer a problem for renters in just New York and Los Angeles. Rents have risen in cities across the country for several years.

The recent hurricane devastation will drive up costs in the coming months and longer.

Developers are looking for new strategies to manage costs while keeping rents within reach of their target demographics.

Balancing Product and Profit

Developers need to deliver amenities today’s renters demand while offering a competitive price point.

Many have focused on high-end luxury apartments that command higher rents. The growing supply in this upper tier of the market means property managers must find creative solutions to manage costs, speed lease-up and avoid concessions.

This year, hurricanes Harvey, Irma and Maria devastated much of Texas, Florida and Puerto Rico. Rebuilding efforts will likely create more demand for building materials and labor, while increasing construction costs.

Given all this, developers are exploring everything from smaller, more affordable unit sizes to larger, mixed-use projects that let them share costs on infrastructure and amenities.

Shrinking Footprints

Forward-thinking developers are reducing the size of apartments to increase the number of units. The smaller apartments have lower rents accessible to more people, allowing developers to hit revenue-per-square-foot targets.

A 2016 study of studio and one-bedroom units released by RCLCO and Axiometrics shows how unit sizes are shrinking. Among the 20 metro areas studied, the average size dropped about 70 square feet (7 percent) from units built in 2000–2009 to those built in 2010–2016.

Average rents have been increasing steadily nationwide by an average of 3.9 percent since 2010, according to the Urban Land Institute’s 2017 Real Estate Consensus Forecast.

Exploring New Alternatives

Some developers are pushing the envelope further by introducing dorm-like “micro” apartment units, typically 300–400 square feet. These lower-cost units have been a hit with millennials, especially in high-demand urban markets where housing costs are higher.

Developers are testing just how deep the demand is for these smaller units. According to the Atlanta Business Chronicle, Gables Residential will introduce about half a dozen 400-square-foot units in the second phase of its Emory Point project in Atlanta.

Developers are also testing alternatives like co-living spaces, which combine small, efficient living units with shared common areas. WeWork, for example, has begun to diversify from its successful shared workspace model.

The company rolled out a residential version with WeLive, which rents fully furnished micro-units. WeLive properties in New York and Washington, D.C., offer hotel-style living with shared common areas, concierge services and interactive events.

Micro-units and co-living spaces might not work for every renter, but they’re attractive alternatives for rental companies looking to manage the costs of traditional housing models. Data clearly indicate voracious demand for more moderately priced workforce housing.

The industry is moving beyond convention to explore new designs and added services.

Stay informed with Aprio.

Get industry news and leading insights delivered straight to your inbox.

Stay informed with Aprio. Subscribe now.