In a recent Wall Street Journal article, the concept of micro units—apartments under 400 square feet—was touted as a growing trend, particularly in expensive urban markets like New York and Los Angeles. With real estate costs soaring, it’s easy to see why developers are turning to smaller spaces to maximize profit. However, despite the short-term appeal, micro units may not be a sustainable long-term investment for both developers and tenants.
Let’s break down why.
- The Appeal of Price Over All Else
The Wall Street Journal article suggests that price is the primary motivator behind the increasing demand for micro units. But is affordability enough to drive long-term success in the real estate market? Here’s the catch: these units are priced at a premium per square foot, and while the upfront rent may seem appealing, the reality is residents are getting much less for their money.
Micro units often lack the differentiation needed to cater to specific market demands. They’re designed as one-size-fits-all solutions, but there’s little thought given to who the actual target customer is or what their long-term needs might be. These units cater mostly to temporary residents, and the high turnover rate in these properties leads to an unstable income stream for investors.
- The Feasibility Exercise: Does Your Life Fit in a Micro Unit?
Take a look at the floor plan below. It’s for a 372 square foot studio – a bit on the larger size for this product type.
Now, let’s imagine fitting just the basics into this floor plan. Here’s a list of minimum possessions a single person typically possesses. See if you can place it all:
Kitchen Essentials:
- Coffee maker, toaster, blender
- Storage containers, foil, plastic wrap
- 2 saucepans, 1 skillet, cookie sheet, cutting board, spatula, ladle, serving spoons
- Four place settings (bowls, plates, mugs), wine glasses, flatware, and serving bowls
- Measuring cups, can opener, cork screw, knives
- At least 1 water bottle and insulated cup
- Paper Towels, dishwasher detergent, dish soap, kitchen towel
Bathroom & Cleaning Supplies:
- Hair dryer, curling iron, skincare products, first aid items (cold meds, ibuprofen, Band-Aids)
- Vacuum, broom/mop, dustpan, cleaning sprays, laundry supplies
- 2 bath towels, 2 hand towels, extra sheets
- Toilet paper, shampoo/conditioner, body wash/soap, feminine hygiene products, hand soap, Kleenex
Pantry Items:
- Rice, flour, pasta, sugar
- Olive oil, spices, vinegar, spaghetti sauce, honey
- Canned vegetables, cereal/granola
- Nuts, chips, crackers/cookies, tea/coffee
Wardrobe:
- 10 pairs of shoes, 3 jackets, workout wear, work clothes, casual clothes
- Handbags, hats, jewelry, suitcase, backpack, umbrella
Miscellaneous:
- TV, laptop/ipad, headphones, clock/personal assistant
With limited counter space, small closets, and no designated storage areas, fitting all of this into a micro unit becomes nearly impossible. This forces residents to sacrifice either comfort or function—neither of which are conducive to long-term living. Even well compartmentalized units with built in storage modules can’t contain all of the above.
The reality is, once you’ve added your essentials, you’ve lost most of your living space. The result? A cramped, cluttered environment that feels more like a temporary stop than a permanent home.
- Who Lives in Micro Units?
Micro units are often marketed as the ideal solution for young professionals or single individuals in high-cost urban areas. But outside of these dense, expensive cities like New York and Los Angeles, the demographic shifts significantly. In these other markets, micro units cater more to business or recreational travelers who need a convenient stopover space for a few days or weeks each month rather than a permanent residence.
Once housing supply returns to normal and rental prices drop even slightly, the demand for these tiny units will dwindle further. With limited options for long-term livability, many of these buildings will likely have no choice but to convert into short-term stay properties like extended-stay hotels or vacation rentals. In fact, micro units often experience high turnover rates because they simply aren’t designed for long-term habitation, lacking the space and amenities necessary for family life or extended residency. The more transient nature of these units makes them a short-term solution rather than a sustainable investment.
- The Gen Z Factor: A New Challenge to Micro Units
As Generation Z enters the rental market, developers may find themselves facing a new challenge. Gen Z is second only to Millennials in size, with over 69 million in the United States and making up about 21% of the US population. The vast majority of these will be in the rental market by 2030 and will join with Millennials as the primary apartment demographic. Current research shows that Gen Z’s values and lifestyle choices don’t align with the cramped, minimalistic nature of micro units.
- Suburban Preference: According to a Cushman & Wakefield study, 44% of Gen Z renters prefer to live in vibrant or quiet suburbs, not in dense urban areas. Micro units, typically located in city centers, aren’t attractive to this demographic.
- Sustainability and Wellness: Gen Z is far more focused on sustainability, community, and wellness than previous generations. They prefer homes that accommodate their lifestyle, including space for cooking, exercising, and socializing. Micro units, with their lack of space and amenities, don’t fit into this value system.
- Community & Social Life: Gen Z places high value on social connections, both online and in person. A small, cramped living space with no room for hosting friends or even gaming sessions (90% of Gen Z identifies as gamers) is far from ideal. Additionally, many Gen Z renters are more likely to have roommates to keep rent under $1,100, which micro units cannot accommodate.
Conclusion: Are Micro Units Worth the Investment?
While micro units may seem like an attractive, affordable solution in the short term, they do not provide the space, flexibility, or functionality that today’s renters demand. Gen Z’s entry into the rental market, combined with shifting lifestyle preferences, will likely make micro units obsolete as long-term investments.
Rather than focusing on maximizing the number of units in a building, developers should consider designing apartments that provide flexibility, community space, and sustainable living options. These are the factors that will drive long-term market demand and stable rental incomes. A simple minimum standard of 450 square feet will provide both affordability and enough living and storage space for a long-term living environment.
Ultimately, a space that people can truly live in will always be more valuable than one that simply saves money.
