Mixed-use development projects provide a tempting opportunity. These developments incorporate multiple uses, such as residential, retail, and office space, into one building or area. However, these projects also come with their own set of challenges and considerations.
For investors considering multi-use commercial building, it’s important to understand the potential benefits and drawbacks. On the positive side, mixed-use development can save space and provide convenience for residents while also creating an appealing destination for businesses and visitors. However, these projects often involve navigating complex zoning laws and require careful planning to successfully integrate various uses within a single space.
Despite the challenges, multi-use developments can offer unique opportunities for investors and positive ROI.
What is a Mixed-use Development?
A mixed-use development is a community that combines residential, recreational, and commercial spaces. These developments can include a mix of:
- Apartments or condominiums
- Retail stores and restaurants,
- Coffee shops
- Offices
- Parks and open spaces
- Occasionally, schools and hospitals
These developments aim to create an all-in-one community where residents can live, work, and play without needing to leave the area. These communities also strive to reduce reliance on automobile transportation by providing convenient access to various daily needs within walking distance.
Multi-use developments are becoming increasingly popular as more cities prioritize creating a liveable, walkable community for their residents. Experts believe that these types of communities provide convenience and a sense of community for residents. They can also have positive economic impacts by attracting businesses and increasing property values.
Different types of mixed-use developments
One type of multi-use development is a live-work community, where residential units and businesses occupy the same building or complex. This allows for easy commuting and provides opportunities for collaboration among residents and business owners.
Another type is a neighborhood center, which combines retail stores, restaurants, and residential units in one location. These developments often have pedestrian-friendly design elements, such as walkways and outdoor seating areas.
A third type is a transit-oriented development located near public transportation hubs, with a mix of commercial and residential buildings. These developments not only offer convenience to residents but also encourage environmentally conscious transportation habits.
Multi-use developments can also combine education, healthcare, government offices, and more in centralized locations for diverse community needs. These are just a few examples of the various types that are becoming increasingly common in cities across the country.
By offering a mix of different uses in one location, such buildings can help to reduce traffic and promote community engagement. As cities continue to seek ways to increase density while still enhancing the overall quality of life, mixed-use developments have become an increasingly popular option.
History
Mixed-use development has a long history in the United States, dating back to the country’s earliest days. One of the first examples of multi-use development was Boston’s Quincy Market, built in 1824. The market was designed to include commercial, meeting, and office space, and it quickly became a popular destination for both businesses and residents.
Over the next century, mixed use zoning became increasingly common in American cities as urban populations grew. New York City’s Greenwich Village is one of the best-known examples of this trend. A once-rural area, it transformed into a densely populated neighborhood with a mix of shops, restaurants, apartments, and houses.
Today, these properties offer popular method to create vibrant, livable communities. In recent years, there has been a renewed interest in this type of development. Many more people are looking for walkable, urban neighborhoods with a mix of uses and open space. Developments can take many different forms, but all projects share the goal of creating lively, sustainable communities.
Key factors driving development
Mixed-use development is becoming increasingly popular in North America as a way to create lively, sustainable communities. Many factors currently drive this trend, including a desire for greater walkability and a more diverse range of amenities and services.
One of the most important drivers of mixed use commercial real estate is the changing demographics of North America. Millennials, in particular, gravitate towards urban areas where they can live, work, and play all in one place. This shift away from traditional suburban sprawl puts pressure on cities to provide more density and variety in their built environments.
Another key factor driving mixed-use development is the increasing cost of land and construction. Developing multiple uses on one site can be more efficient and cost-effective than creating separate, single-use developments. This is especially true in urban areas where land is scarce and expensive.
Mixed-use development also has many environmental benefits. Concentrating development in one area can reduce the need for car ownership and reliance on fossil fuels. It can also lead to more efficient use of resources like water and energy.
All of these factors are leading to a growing demand for property development. Developers who can create successful mixed-use projects will be well-positioned to capitalize on this trend.
What are the Benefits of a Mixed-use Property?
A mixed-use property can offer many benefits for commercial real estate investors, tenant residents, and businesses renting commercial space.
Investors
Mixed-use properties can be an attractive investment for commercial real estate investors due to the steadier income stream that they can provide. This is because mixed-use properties are less susceptible to changes in the market, as there is always a demand for the various types of uses they offer. For example, even if the office market in a particular area softens, a mixed-use property’s retail and residential components will still be in demand.
Residents
Tenant residents may appreciate the convenience of having retail and other services located within the same building or complex as their home. This can save them time and money by eliminating the need to travel to separate locations for these different needs. It can also create a sense of community within the building or complex, as residents will have the opportunity to interact with each other daily.
Businesses
Businesses renting commercial space in a multi-use commercial property can benefit from increased foot traffic and visibility. This is because people visiting the retail or residential components of the property will also be exposed to the businesses located there. Additionally, businesses located in mixed-use properties often have the advantage of offering extended hours of operation. They are not limited by the hours of operation of the other components of the property.
Potential Risks and Drawbacks of Mixed-use Development
One risk to mixed-use is that they often require a higher up-front investment than traditional single use development projects. Additionally, mixed-use developments can be more challenging to finance and manage than conventional development projects.
There is also potential for conflict between the different uses within a mixed-use development. For example, different expectations between residential and commercial tenants may lead to increased operational costs and lower occupancy rates. Finally, because mixed-use developments are typically located in urban areas, they may be subject to greater regulation than traditional development projects, which can add to the overall risk of the investment.
Overall, mixed-use developments can be a great investment, but it’s important to weigh the pros and cons before making a decision.
How to Invest in Mixed-use Property
When investing in mixed-use property, it’s paramount to research the location thoroughly. Look for areas with a reputable history of growth and strong economic indicators. It’s also crucial to invest in properties that offer amenities such as public transportation and walkability, as these can attract potential tenants and increase property value.
Additionally, it’s important to have a solid understanding of the rental market and project realistic rental prices. Determining a fair rate for mixed-use property for rent can be more complicated than other CRE classes.
And lastly, be sure to invest in properties with a diverse tenant mix. A combination of retail, residential, and office space allows for stability in case one market sector declines. By following these best practices, investors can minimize risks and set themselves up for success with their mixed-use property investments.
The Bottom Line
Overall, mixed-use developments can be great commercial real estate investments with a lot of potential upsides. However, there are also some risks to be aware of before investing in mixed-use property. Before making any decisions, be sure to consult with an experienced commercial real estate professional. A broker can guide you through the process and make sure you are making the best decision for your specific situation.
