Economic conditions have converged to make life especially difficult for one particular type of floor plan: the studio. We expect demand for studio units to remain depressed in the short term, but we anticipate a post-vaccine snapback will reinvigorate demand, closer to employment and cultural amenities. In the meantime, we’ve identified some opportunities to survive the studio slump:
Studio, or Studi-NO!
Studios are positioned particularly poorly for a pandemic economy. No-bedroom units represent just 9% of all US apartment stock but are overrepresented in buildings closer to downtown cores, where they have an outsized impact on urban occupancy rates. During their 3Q20 earnings calls, 4 out of the 7 publicly traded apartment REITs called out occupancy challenges with regards to studios, and we expect the trend to continue through the winter as stringent rules for bars, restaurants, and nightlife make it harder to justify a downtown price tag.
Surviving and Thriving
The demand for studios may be slowing, but apartment developers still have options to differentiate themselves:
- Studios as Amenities
Inject new life into studios by repurposing them as amenities. On its 3Q20 earnings call, Essex Property Trust announced it would begin converting some of its empty studios into rent-by-the-hour office spaces for residents working from home. The options here are endless: meditation rooms, art studios, or anything geared towards solitary enjoyment will do. Just as long as the spaces are clean!
Target Young Renters
Over the summer, the number of 23–30-year-olds living with a parent spiked to levels last seen during the Great Depression. Consider targeting this group for your studios by touting independence, affordability, and even a dorm-like environment for groups of friends. Young people that have been living in their childhood bedroom over the last 10 months may be anxious for their own space and looking for a new option, especially as schools move their spring semesters online.
Play the Long Game
Vaccines are being distributed as we write this, and there is light at the end of the tunnel. There is an opportunity to entice tenants to studios in the short term by creating a sense of urgency. Rent drops and concessions of 2–3 months in urban cores have made exciting cities more affordable than any time in recent memory. Tenants that lock in their rents now can enjoy proximity to urban amenities for a bargain, and renting for an affordable studio means more flexibility to spend once things reopen.
Demand for studios will snap back as vaccines are distributed, downtowns reopen, and people shift their spending habits from goods to services. Rents may fall through 2021 as buildings compete for tenants, but demographics and consumer preferences indicate the future of studio floor plans will be bright.
For ongoing coverage of trends and forecasts on 45+ markets across the country, make sure to check out our Apartment Analysis and Forecast report.