The U.S. apartment market performance is surging now, seen especially in the acceleration of rent growth emerging across many metros. Pricing power is really soaring for larger floor plans in most places, while smaller apartments tend to be rent change laggards.
Effective asking rents for three-bedroom apartments popped by 4.1% year-over-year in the April stats, and there was a very solid 2.9% annual increase in two-bedroom pricing.
In contrast, rents for one-bedroom apartments were basically flat, inching up just 0.4% from the year-earlier level. Still, that proved lots better than the annual price change of -6.2% registered among efficiency apartments.
Over the past year, occupancy climbed by 90 basis points (to 95.8%) in three-bedroom units and by 60 basis points (to 96.1%) in two-bedroom units. There was lesser occupancy growth of 20 basis points (to 95.6%) in one-bedroom floor plans. Efficiency units suffered an occupancy loss of 80 basis points (to just 94%).
The Work from Home Impact
Economic factors and renter demographics certainly shaped what has happened in pricing results across floor plan types during the past year.
With job losses proving most severe in the hospitality sector and other industries that employ lots of young workers, a chunk of the 20-somethings who play such an important role in the small apartment resident base returned to live with mom and dad for a while. The good news is that they’re now tending to form their own households once again, but there’s still some year-over-year net loss in that renter group.
Probably more significant to the outperformance for larger floor plans, those who have been working from home have wanted more space. They’ve been willing to pay the higher rents to upgrade to two- or three-bedroom units.
Shifts in apartment performance levels across floor plans will be interesting to watch over the course of the next few months. As more workers return to the office at least part of the time, small apartments might not feel quite so cramped. Furthermore, as more people are vaccinated against COVID, fewer renters will spent the bulk of their time within the confines of their apartments.
More spacious floor plans certainly could maintain some sort of performance premium over smaller counterparts during the near term, but it seems unlikely that the differences in results will remain at the levels recorded now.