Microunits 101: Developing and operating a unique asset class

Real Estate Industry

Microunits 101: Everything you need to know about this rising asset class


In the wake of COVID-19 and staggering unemployment rates, microunits offer renters a comfortable and attainable option in their search for safe housing. But developing and designing this rapidly growing asset class comes with its own unique challenges.

For episode 10 of our Common Knowledge series, we brought together two of the leading developers of Microunits, Brad Padden, Founder of Housing Diversity, and Brian McCarthy, Principal at Tenth Street Ventures, along with Common’s Creative Director, Jenn Chang, for a discussion on developing and designing microunits for today’s renter.

Continue reading to learn more about microunits and hear insights from our discussion.

What are microunits?

There’s a difference between a microunit and a studio apartment, and it all comes down to square feet.

A microunit is typically classified as an apartment ranging in anywhere from 180 sq. ft to 450 sq. ft, depending on the city where the microunit is located. In Seattle, start on the smaller end of the spectrum, whereas in the Midwest in cities like Chicago, a standard microunit is 450 sq. ft.

Microunits come in all shapes and sizes, with a variety of amenities. Some smaller microunits might forgo a full-sized kitchen in exchange for a kitchenette with a communal full-sized kitchen in the building, while others have ovens, stove-tap ranges, and microwave ovens. Furnished microunits may offer convertible furniture, like a Murphy bed, while others offer lofted sleeping areas. The design and offerings of a microunit are dependent on the developer, the building itself, and the core needs of the target renter.

The benefits of micros for renters and developers

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Microunits offer renters one of the most important amenities in a city apartment: affordability. By sacrificing some space, renters can have a private apartment in an area close to work, friends, and city life, without becoming rent burdened. Living affordably in a city also allows renters to gain access to new economic opportunities, and contributes to a culturally diverse and inclusive environment.

For developers, building microunits poses many of the same benefits as building coliving: higher density (when paired with exceptional operation) leading to an increase in NOI over traditional studios and 1- and 2-bedroom apartments. And because rents are so affordable, tenants are more likely to be able to prioritize paying rent during an economic downturn. According to Brad Padden, the delinquency rate for his Common-operated Seattle portfolio was 50% lower than traditional multifamily buildings.

Why aren’t there more of them? What are the challenges?

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Microunits used to be near impossible to build in major cities due to zoning laws. But as the housing crisis grows, local city governments have begun to rethink these laws in order to create more affordable options. This has already happened in Seattle — in 2010, the city liberalized zoning laws around density and parking requirements, leading to the development of thousands of microunits.

However, any city that has an affordability problem has the opportunity and reason to look at microunits as one solution to their issue. Brian McCarthy believes that the Southeast is especially right for microunits at this moment, as more people begin work remotely and have increased options to move out of coastal cities. While ground-up construction is difficult, his firm is looking to adaptive reuse of motels and hotels in order to create attainable microunits.

Designing for microunits

cleaning hacks to transform your apartment

The difference between a cramped apartment and a comfortable microunit lies in the design. According to Jenn Chang, Creative Director at Common, developers and architects need to be honest about what a microunit can and can’t be used for, so they can allocate resources to what matters most within the space, and the shared spaces and amenities within the building.

Jenn also warns against skimping on finishes and features that increase livability in microunits, like soundproofing walls and high-speed WiFi. Finishes might only cost 10-15% of a developer’s construction budget, but they attract a renter with a higher overhead, and make comfortable city living and affordable city living not mutually exclusive for the average renter.

Common’s micros portfolio

Get in touch

If you’re interested in learning more about developing microunits for today’s renter, you can watch the full episode of Common Knowledge on Crowdcast.

If you’re interested in living in Seattle, stay tuned! We’re opening homes across the city this year. Follow us on Instagram to get the latest updates.

To get in touch with the Common team about operating a microunit project in development or an existing portfolio, reach out to partners@common.com.

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