Another Multifamily Shift: Less Call for Three-Bedroom Units

Article originally posted on Globe St. on March 6, 2024

There was noted heavy demand for more space during the heights of the pandemic. When offices and schools were closed, along with cafes, libraries, and other places that might offer a place to work or study, people looked for larger living spaces. That could be purchasing a house out of a city, or it could also be leasing a larger apartment.

Renters’ choices are swinging back in the other direction now.

“In yet another example of apartment fundamentals returning to pre-pandemic norms, occupancy among unit types has rebounded back to typical pre-COVID patterns,” RealPage writes. “In particular, occupancy among the largest unit type – three-bedroom units – has softened, after surging to all-time highs earlier in 2021 and 2022.”

Pre-pandemic, the accustomed pattern of apartment occupancy was a split group of two. Total occupancy, one-bedroom occupancy, and two-bedroom occupancy were roughly the same, hovering something about 96%. Then three-bedroom and efficiency occupancies were about 70 basis points below.

The reason the second group could be below total occupancy levels is because there were far smaller in number, so they didn’t have a large on the total.

Then came the pandemic and patterns changed significantly. Two-bedroom rose to the highest occupancy levels. Slightly below, total, two-bedroom, and three-bedroom occupancies grouped together. Efficiency occupancies began to plunge below the second group, eventually falling to about 200 basis points beneath by January 2021, a year in from the start of the change.

The gap between efficiencies and everything else than began to close. A year later, January 2022, that apartment type was back to the pre-pandemic 70-basis point gap, but three-bedrooms continued to be close to one-bedrooms.

Starting in March 2022, one-bedrooms, two-bedrooms, and total occupancies continued in concert. Three-bedrooms began to separate out, falling downward about May 2022. By September 2022, the older patterns were largely reestablished. January 2024 saw everything back to where it had been.

“One-bedroom units logged occupancy of 94.1% in January, followed closely by 94.2% in two-bedroom units,” Real Page wrote. “Three-bedroom units and efficiency units were the underperformers again in January with occupancies of 93.4% and 93.3%, respectively.”

According to RealPage, and to commonsense, this wasn’t a surprise. Efficiencies were poor choices for many renters who had to work from home because they were more cramped for space. Three-bedroom units were a small portion of the total. An interest in more space by consumers pushed their usage, and therefore occupancy, upward.

But more space is more expensive. When need lessened, a significant portion of tenants likely shifted back to smaller units as well as efficiencies.