In recent years, the cost of urban living in desirable Canadian cities like Ottawa has surged, giving rise to a housing challenge. From rent to public transportation, the expenses have soared. According to data from Apartment Lists, rents in Ottawa rose by nearly 25% from January 2021 to January 2023.

For many, city living has become prohibitively expensive. The allure of tiny house living, or more specifically micro suites, has gained traction as an alternative. People are increasingly drawn to the convenience of inner-city living in these compact apartments over moving to suburbs, incurring additional expenses like owning a car, securing a parking space, and covering fuel costs.

Urban dwellers seeking accessibility to city life find themselves in a dilemma: pay a premium for an inner-city apartment or face the added costs of relocating away from the city.

However, there are promising alternatives for economically conscious urban renters. A trend in multifamily living is the rise of micro suites, providing urban dwellers with a way to reduce rental costs while still relishing the perks of city living.

What Are Micro Suites?

As the name implies, micro suites focus on offering renters compact, cost-effective living spaces in prime locations, often sacrificing features like a dining room. Young professionals, aiming to trim monthly expenses while staying close to workplaces and city conveniences, are increasingly embracing micro suite living.

Buildings dedicated to micro suite living typically offer small floor plans, allowing renters to stay in their city of choice while cutting rental expenses. To counter the downsides of limited space, these communities often emphasize exceptional communal amenities.

Micro suites appeal to renters for their relative cost savings and diverse amenity offerings. Simultaneously, real estate owners and operators find them attractive for various reasons.

Why Invest in Micro Suites Now?

Post-pandemic, urban renters sought temporary accommodations in less populated areas. With the return to office expectations, these renters are seeking affordable options to avoid the immediate expenses of city living. This surge in demand makes it an opportune time to invest in micro suites.

Micro suites are cost-effective to build and own for property owners. These communities have a lower entry cost than traditional apartments, enabling investors to initiate projects with less initial investment. By optimizing space, owners can accommodate more renters in a single building, potentially yielding better profits.

For instance, consider an apartment building with an average unit size of 1,000 square feet and around 20 units. If each unit rents for an average of $2,000/month, the building generates a monthly revenue of $40,000. Now, reduce all floor plans by half, resulting in 40 units at around 500 sq. ft. each. Adding desirable communal amenities allows charging a premium, say $1,300/month per unit. The same building could then generate $52,000 in monthly revenue.

Data from the Urban Land Institute indicates that apartments 600 sq. ft. and under boast the highest occupancy rates in the country, reflecting the acceptance of micro-living among renters. Hence, the timing for investing in micro-living apartments appears favorable.

In summary, the current scenario presents a lucrative opportunity to invest in micro-living apartments. The demand is evident, optimizing profits with smaller spaces is feasible, and urban living remains a prevailing trend.

Benefits of Investing in Micro Suites

The appeal of micro suite living has garnered significant interest from renters. Now is an excellent time for investors to leverage this interest in lower-cost, minimalist units that enable renters to stay in their preferred city with reduced living expenses. Several benefits accompany investing in micro suite living communities.

1. Lower Initial Investment Costs

Micro suite communities are typically smaller, resulting in a much lower sale price compared to conventional apartment buildings. Moreover, investors can generate more revenue with a smaller space, accelerating the return on investment.

Micro suite communities usually occupy prime urban locations that often come with a higher initial price. These communities provide a strategic way for investors to build portfolios in high-value cities with less initial capital.

2. Healthy Demand Across Demographics

Micro suite living caters to a diverse range of tenant types, including young professionals seeking proximity to the office, cost-effective off-campus living for college students, and downsizing options for older renters and retirees. Additionally, there are opportunities to tap into short-term vacation rentals, providing travelers with affordable, well-located options.

3. Higher Return on Investment (ROI)

Contrary to the assumption that micro suites, costing less to rent, would yield lower returns, data suggests otherwise. According to the Urban Land Institute, micro apartments exhibit higher occupancy stabilization and generate a higher rent-per-square-foot ratio than most conventional apartments. Micro suites, despite their compact size, often offer a wealth of on-site amenities, enabling owners to charge a premium on rent.

Risks of Investing in Micro Suites

Despite their attractiveness, investing in micro suite communities is not without risks. Addressing these risks is crucial for successful investment management.

1. Location Challenges

Investing in micro suites requires careful consideration of the location. Micro suite communities thrive in desirable and otherwise expensive urban areas. Convenience to shops, public transportation, event venues, and office buildings, along with existing or planned amenities, contributes to their success. Investing in micro suites in areas not conducive to downsized living, such as small towns or agricultural areas, could result in lower-than-expected returns.

2. Zoning Issues

Micro suites represent a relatively new concept, gaining prominence post-pandemic economic shifts. Consequently, zoning laws and regulations present challenges. Each province has its own zoning laws dictating where and how these buildings can be developed. Minimum square foot requirements and other regulations can pose hurdles. Researching the specific legal landscape of the target area is essential to avoid potential roadblocks.

Pros and Cons of Micro Suites

In conclusion, micro suite units exhibit higher occupancy rates and overall higher ROI than conventional apartment communities. They present a win-win scenario for owners and renters alike. As urbanites return to major cities, investors have a golden opportunity to provide micro suite communities in high-value areas.