Here’s the problem with so many one-bedroom and studio apartments

When the Greater Charlotte Apartment Association toured five brand-new communities last week, the first thing that stood out was the level of luxury amenities, from wine fridges to indoor basketball courts. But another notable feature: Most of the new apartments are made up of one-bedroom units and studios.

At four of the five apartment buildings, one-bedroom and studio units make up a majority of apartments, ranging from 54 percent at Encore SouthPark to 67 percent at Mercury NoDa. That’s higher than the average in the Charlotte market, where a majority of units are two- or three-bedrooms, and shows how developers have shifted to a mix of apartments that favors far more one-bedroom and studio units.

Only one of the apartments we toured, Legacy 521 on Greythorne Drive in Ballantyne, had a majority of two- and three-bedroom units (73 percent). It’s also the least dense, with 15.5 units per acre vs. 87 units per acre at Encore SouthPark.

So, why does it matter? One-bedroom and studio apartments are usually more expensive (on a per-foot basis), and while they can be great for young, single renters or couples, it’s harder for families to find a place to live in rental communities where many places don’t have two or more bedrooms. And studio and one-bedroom apartments might be less appealing to current renters as they age out and start having families of their own.

(For an in-depth look at this issue playing out in Washington, D.C., read this Washington Post story, “In gentrifying D.C., apartments for large families are quickly disappearing.”)

Across the Charlotte region, almost 60 percent of all apartments are two- or three-bedroom units, according to Charlotte-based Real Data. One-bedroom and studio units rent for less – $957 a month on average, vs. $1,052 for all apartments – and have a slightly higher vacancy rate, 7.1 percent vs. 5.9 percent for all units.

So if they rent for less and have a higher vacancy rate, why are apartment developers building so many one-bedroom and studio units in new buildings? The answer lies in the rent per square foot, the metric that companies use. On average, one-bedroom units rent for almost $1.31 per square foot in Charlotte, vs. 93 cents per square foot for a three-bedroom.

That means if you’re developing 200,000 square feet of apartments, you could see somewhere around 30 to 40 percent more revenue developing that space as one-bedroom and studio units (in this oversimplified example). With land prices already high – and rising – for many of the upscale, infill projects under development, developers need to maximize their returns.

You can see the per-foot price differential at Mercury NoDa, where a three-bedroom unit rents for up to $1.63 per square foot – but a studio can fetch $2.08 per square foot. There are 55 studios and four three-bedroom apartments in Mercury NoDa. At Village at Commonwealth, a three-bedroom goes for $1.43 per square foot, while a studio goes for $1.72 per square foot.

This story originally ran at CharlotteObserver.com.

Photo: Robert Lahser

This story was originally published October 5, 2016 at 9:00 PM with the headline "Here’s the problem with so many one-bedroom and studio apartments."