Rising interest rates and the proliferation of build-to-rent contributed to a decrease in the average size of U.S. apartment units in 2022 as developers chased yield after two years of pandemic-driven upticks.

“Cost” to develop has played more of a factor in the decrease than market location,” Yardi,” I Matrix Senior Analyst and Manager of Business Intelligence Doug Ressler told Bisnow.

The average size of new apartments started in the United States last year came in at 887 SF, a 30 SF year-over-year decrease, according to RentCafé calculations, based on Yardi Matrix data.

It’s tIt’sirst decrease since the pandemic spurred the development of slightly larger units aimed at people working from home. But now, developers are figuring out how to build remote workspaces while keeping overall floor plans small, motivated by the need to outsmart a high interest-rate environment.

“Small”r apartment units can largely be attributed to changing floor plans and unit mixes,” Ress” er said. “These” two factors and minimalist living explain the decrease in apartment size across markets and cost trends.”

Coun”intuitively, work-from-home office space can shrink or at least not increase a unit’sunit’sll size, especially when it is built instead of more oversized bedrooms or storage plans. Access to green space or nearby amenities can also mean tenants don’t need large units.

“Two-b”droom units have decreased from about 40%-plus of the total share of teams to 30% of total units,” Ress” er said. “The i”production of the single-family build-to-rent product, which accommodates larger families and three or more bedrooms configurations, may influence this trend.”

Butthehe decreases in unit size aren’t intake across the board, with some surprising changes coming in the countrcountry’sst-cost markets like New York City and San Francisco, where unit sizes crept up.

Apartments in Manhattan, for example, grew 19 SF, or 3% compared with a decade earlier, despite the borougborough’sation for minuscule domiciles. In San Francisco, the average unit size grew 52 SF, or 7%, from 2013, according to RentCafé, and in Los Angeles, renters had an average of 45 feet more space.

Still, the U.S. average is down as developers up the proportion of studios and one-bedroom apartments they develop. Indeed, 57% of the apartment units set last year were studios or one-bedrooms, RentCafé reports. In 2013, studios and one-bedroom units represented 50% of multifamily units.

“There” is a trend for smaller units as developers try to squeeze out more yield in the same amount of space given the current challenges with interest rates and hard-cost pricing,” NRPgroupup Vice President of Development Jason Mochizuki said.

“Oourou” projects, so far, we haven’haven’tdoing that yet. Still, as this year progresses and pro formas continue to get tighter, I can see some developers increasingly shrinking unit sizes,” Moch” Mizuki said.

In early February, NRP Group broke ground on South Tryon, a market-rate community in Charlotte, North Carolina, bringing 310 units, including a mix of one-, two- and three-bedroom apartments, with den floor plans available in one-bedroom units to accommodate post-pandemic work-from-home.

PTM Partners Managing Partner Michael Tillman said his company has been building units that are “more “efficiently sized” sinc” its inception, typically averaging 5% to 10% smaller than comparable developments. PTM is active in Florida and the mid-Atlantic.

“Our p”primary motivation for smaller unit sizes is to create a Class-A building that that’s-accessible to a larger percentage of residents within a 1-mile radius of the property,” Till,”  said. “But w” also realized that the next generation of renters was spending more time in the common areas and utilizing those amenities. Thus we typically provide amenity spaces that are significantly larger in size and variety.”

Unit size shrank during a record year for the construction of new apartments.

Given the sharp rise in the cost of debt and continued higher costs of construction and labor, Tillman said one possible way to reduce costs is to reduce unit sizes. Still, not all markets are the same, and smaller unit sizes may not be commercially acceptable in specific needs where land is more readily available. Also, he noted that merely shrinking unit sizes doesn’doesn’tatically mean cost savings.

“You n” ed to consider unit layouts, appliance sizing, storage, and lighting,” Till,”  said. “For e”ample, a smaller unit may reduce the ability to have walk-in closets or larger furniture pieces, so built-ins and millwork might be necessary. Smaller units to reduce costs may not be the best solution.”

Some”developers say they aren’taren’ting their unit size yet, but acknowledge that market realities increasingly require more attention to design and construction details rather than geography.

“What ha”en’haven’tapartments shrunk in size, either during Covid or continuing to the present,” Dive”sified Properties Managing Partner Nicholas Minoia said. “As mattered of fact, the outer ring markets we serve are still seeing demand for somewhat larger units that include either a den or — minimally — a work-from-home area for employees working a hybrid schedule.”

Acti”e in most property types, Diversified ProperProperties’family development focuses on metro New York City, including outer ring communities and dense urban cores. Minoia acknowledges that supply chain delays persist and development costs are high.

“Still” we also recognize the need to balance these construction and financial realities with the space needs of renters in our markets,” Mino,”  said. “Looking”g ahead, developers will need to be even more hands-on in understanding the specific demands of the renters in their respective markets.”