Honey, I shrunk the space

By: J. David Chapman/May 9, 2019

We are witnessing a shrinking in the square footage in nearly every category of real estate in the U.S. This is not in total square footage nationally, but in individual spaces.

For starters, we have seen the average size apartment shrink 8 percent over the last 10 years and is now only 889 square feet. The average sized new single-family home is now 2,576 square foot down from a peak of 2,700 square feet in 2015. Office space, which we measure in square feet per employee, is down 8.3 percent in the last 10 years and is now 194 square feet per employee. The cause of this shrinkage is simple – affordability.

We are also seeing a significant down-sizing of typical space in retail. The smaller spaces in retail are a bit more complicated than in housing and office. Increasingly, major retailers are expanding into locations with more difficult real estate situations, such as urban sites that don’t allow for their typical suburban footprint because of codes, density and high rents.

Besides the growth strategy into urban locations, e-commerce is also affecting the size of the retail space. Many are replacing underperforming stores with a showroom concept to support their e-commerce efforts. A showroom is a store that showcases products, but sells nothing directly to the consumer. Instead, a showroom offers items for inspection, gives advice on products to consumers, and takes orders for shipment to the customer’s home or office.

Frankly, this is how many of us are already using retail stores. We browse in person and then purchase online. The showroom concept prevents the retailer from carrying the inventory and therefore allows them to shrink the footprint of the store.

This complicated retail scenario brings me to the only real estate category that has actually seen its individual building footprint increase in size. Warehouses constructed from 2012 to 2017 average almost 185,000 square feet, which is 143% larger than those built during the previous peak period from 2002 to 2007. The growth in size of warehouse footprint is not unrelated to the changes in retail. As retail relies less on storing and distributing inventory via their existing stores, they become more reliant upon the storage and distribution of inventory at the warehouse level causing these warehouses to increase in size.

J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).