A heat pump water heater needs a documented path for air entering and leaving it. A small closet is not approved by tank fit alone. Match the actual heater's ventilation or duct configuration; Rheem's cited manual requires ducting separate from other appliances. Have the installer assess the complete route, replacement air, clearances and condensate before purchase.
Check the air route before buying the tank
A heat pump water heater can fit inside a closet and still lack the air route its instructions require. Identify the exact electric heater and obtain its installation manual before ordering. This answer uses Rheem's electric residential hybrid manual AP23657 Rev 04 as an example; it does not approve every model sold under the same brand.
The Rheem manual shows separate arrangements for an unducted room, a small closet, one duct and both inlet and outlet ducts. Those diagrams are installation choices with different conditions. A general statement that hybrids work in garages does not decide which arrangement suits a closet.
Distinguish one duct from two
In the cited manual's one-sided duct arrangement, the heater has an inlet or outlet duct, and the diagram requires replacement air through a door gap. In its inlet and outlet duct arrangement, the diagram says no additional ventilation is needed. Follow the complete applicable diagram; do not use that line as permission to ignore clearance, service access or another model's requirements.
Ask the installer where incoming air originates, where cooler exhaust goes and how air returns when only one side is ducted. A door that normally stays closed belongs in that assessment. Adding a random grille does not establish an approved installation.
ENERGY STAR's placement advice warns that confined spaces can reduce efficiency and recommends surrounding air space. That is useful planning guidance. It is not a single room-volume test that replaces the selected heater's allowed configurations.
Keep this duct separate from the house system
Rheem's cited manual expressly says not to connect the heater to existing ductwork and to duct it separately from other appliances. An adjacent air-conditioning return therefore is not an automatic connection point.
Its duct requirements also address support, insulation to prevent condensation, outdoor terminations, vibration and keeping exhaust from recirculating into the intake. Calculated duct length includes both inlet and outlet; fittings and airflow resistance matter too. Have the installer select the approved arrangement rather than attaching a hose solely because its diameter fits.
Preserve maintenance and drainage access
The finished closet must also accommodate air-filter care and the documented condensate route. A condensate alarm has a separate investigation; moving air does not prove that water drains correctly.
Keep the selected manual, air-route drawing and installation requirements with the estimate. Hybrid heater selection covers the broader choice. If the unit is already noisy, fan and compressor observations help describe the symptom without diagnosing the duct from sound alone. Leave duct alterations, electrical work and any former gas connection to the appropriate qualified installer.