Boomers vs Millennials: Demand for Micro-Units and Urban Living
As baby boomers increasingly embrace renting over homeownership, they may have something in common with millennials: an interest in paring down and living in an urban micro-unit apartment.
To be sure, millennials make up the largest share of micro-unit apartment dwellers, with those under age 27 the biggest demographic, according to a study released by the Urban Land Institute. However, secondary segments include couples, older-move-down singles and pied-à-terre users, ULI notes.
Multifamily investors who have targeted micro-unit developments mainly at 20- to 30-somethings may want to consider whether there could be a growing demand for these smaller apartments among baby boomers, too.
What's a Micro Apartment?
There's no standard definition for a micro apartment unit, but typically it's a small studio apartment, offering between 200 to 400 square feet with a kitchen and private bathroom.
Apartment buildings with micro-units first began appearing several years ago in high-cost U.S. cities, such as New York and Seattle, and their popularity has since spread beyond coastal cities to Denver, Chicago and other markets.
Multifamily developers typically build micro-unit communities in urban centers or near public transit. A big draw is walkability to amenities such as trendy restaurants, shops, nightlife and cultural activities. Amenities within the micro-unit apartment community can also attract renters, and may include communal gathering spots, a luxurious pool and concierge services.
Appeal for Baby Boomers
Baby boomers likely seek out micro apartments for some of the same reasons as their younger counterparts: location, amenities, affordability and flexibility.
For boomers, these small spaces offer a simplified style of living commensurate with empty nester downsizing and the desire to free up time and money spent on home and yard maintenance.
More than 50 percent of U.S. households are now led by someone who is 50 or older, according to the Joint Center for Housing Studies at Harvard University. Over the next decade, aging boomers will add 8.4 million households that are single persons or married couples without children at home — a potential market for micro-unit apartment developers and investors.
As boomers exert their market clout and seek out alternatives to traditional retirement communities, micro-units could play a role in the mix, especially for those with more limited incomes.
Micro-Unit Market on the Upswing?
For multifamily investors, there are challenges and upsides to building micro-units: They cost more to develop and operate than traditional apartment communities, but outperform conventional units with higher occupancy rates and significant rental-rate premiums, according to the ULI study.
The number of renter households headed by someone 55 years or older was up by approximately 189,000 in 2018, following gains of 343,000 on average in the prior two years, according to JCHS's The State of the Nation's Housing 2019 report, which cites U.S. Census Bureau data.
Since older households now account for 25 percent of renters — with some embracing small apartments — multifamily investors may want to consider them as a potential demand driver for future micro-unit multifamily investment and development.