SAN FRANCISCO—Wouldn't it be convenient if someone hadclear, intelligent answers to most of your CRE-related questions?Problem solved. Nina J. Gruen, a.k.a. Ms. Real Estate, a.k.a. theprincipal sociologist overseeing market research and analysis atGruen Gruen + Associates, is here to answer readers'questions.

Dear Ms. Real Estate:

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Lately I have been reading about the development ofmicro housing units in locations like SanFrancisco. Do they make economic sense both in the short and longerrun? Put differently, are they just a passing fad?

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—Mighty Micros or a Pestin Disguise?

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Dear MightyMicros:

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As you are aware, today's micro units tend to range in size from165 to 350 square feet. Developers specializing in this productrealize the demand for such units exists in vibrant city locationsclose to public transportation. Equally important, because microunit buildings typically contain no internal amenities or parking,they must be located within walking distance of the urban amenitiesthat provide convenience in high energy, exciting neighborhoods.Examples of necessary amenities that must be located on the streetwithin a quarter mile of the building are groceries, take-outfoods, coffee shops, bars and clubs, and entertainment optionssuited to the age/lifestyle of the tenants.

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The per-square-foot cost of construction per unit will besomewhat higher than larger units, because the costs of kitchensand bathrooms will be spread over fewer square feet of rentablespace. Net to gross ratios for micro units are also likely to behigher than larger units, because the building will not containamenities such as workout rooms and parking. But if the unitsare located in high rent cities such as San Francisco, New York orVancouver, the per-square-foot premium of the micro units will begreater than the square foot increase in costs. For example, if theunit is 275 square feet (a little larger than the size of anaverage hotel room), an obtainable rent of $6.00 per square footyields a monthly rent of $1,650.

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In expensive housing locations like San Francisco, where a newtwo-bedroom unit is priced between $3,500 to $4,500 per month, forthose prospective renters who would be required to share this spacewith roommates the micro unit can be a satisfactory option.

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A primary market for these micro units in San Francisco is theyoung techies whose starting salaries range between $80,000 and$120,000. Their annual rent for a new micro unit would thereforerequire between 17 and 20 percent of their total annual income.Given the fact that many of these younger tech workers spend muchof the day at their company which, by the way, offers food throughoutthe daya micro unit where they don'thave to share space can be a big benefit.

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With respect to your question as to whether these micro unitsare likely to be a fad, if well designed with high qualityfeatures, I believe they will continue to be demanded. In additionto younger tech workers, there are two additional primary markets:the older Baby Boomers and pre-Boomers with limited funds thatprevent them from renting or purchasing a larger unit in expensivelocations like San Francisco, and both U.S. residents andforeigners seeking a pied-a-terre in San Francisco. Both sets ofrenters are willing to trade off size for nearby 24-hour amenities.To sum up, sometimes smaller is better.

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Nina J. Gruen

Nina J.Gruen has been the Principal Sociologist in charge of market research and analysis at Gruen Gruen + Associates (GG+A) since co-founding the firm in 1970. Ms. Gruen applies the analytical techniques of the social sciences to estimating the demand for real estate and to understanding the culture of the groups who determine the success of development, planning, and public policy decisions. She is a pioneer in synthesizing the results of behavioral research with quantitative time-series data to forecast market reactions. Market and community attitude evaluations and programming studies led by Nina Gruen have resulted in the development and redevelopment of many retail, office, industrial, visitor, and residential projects, varying in scale from a single building to large single- and mixed-use projects.