Urbanization’s nothing new — in fact, from 2000 to 2010, the demographic population of major city downtown areas grew 26%. Mixed-use development refers to a blend of compatible amenities, utilities, and land uses that enable people to live, play, shop, and work in a more concentrated area, often within walking distance.
Mixed-use includes various forms, but the three most common are:
- Vertical mixed-use buildings
- Horizontal mixed-use blocks
- Mixed-use walkable neighborhoods
Vertical mixed-use buildings combine different uses within one building. Perhaps the first floor contains retail or restaurants, or a mixture of the two. The next several floors might house various professional offices. And the last few floors might include residences, like a hotel or apartments.
Horizontal mixed-use blocks combine single-use buildings on specific land within a block. This approach allows buildings to share utilities and amenities while keeping the area to a reasonable, walkable size.
Mixed-use walkable neighborhoods include a combination of vertical and horizontal buildings and blocks within a five to 10-minute distance of one another. In all three of these mixed-use scenarios, people can live, work, and enjoy recreational activities without having to hop in a car, which helps to reduce carbon footprints.
Driving the Trend
While many Millennials (people born between 1980 and 2000) prefer to live in dense, urban areas, they aren’t the only demographic in favor of mixed-use, walkable neighborhoods. Baby Boomers also appreciate the convenience, workability, and expedience of these developments.
A 2017 National Association of Realtors poll found:
- 62% of Millennials and 55% of the Silent Generation (people born between 1928 and 1945) prefer shorter commutes and walkable communities
- 54% of young women rank sidewalks and places to walk as important factors when deciding where to live
- 39% of young women want public transit nearby
- 49% of women and 48% of men named a short commute to work as a deciding factor in determining where to live
A 2019 study conducted by the International Council of Shopping Centers also saw an increase in the number of people who would consider living in a mixed-use community.
- 78% of U.S. adults said they’d explore the option, including 85% of Millennials and 71% of Baby Boomers
- 55% cite convenience as the main driving force
- 44% indicated that their visits to retail include other activities besides simply shopping
- 36% have increased visits to fitness/ wellness facilities and 34% to medical facilities located in mixed-use locations
- 38% surveyed said they spend more on dining out than in 2017 and 50% said would like to see more options at shopping centers
- 40% of respondents wanted more entertainment and leisure venues
As mixed-use development continues to grow, a range of benefits drives its popularity among building owners, property managers, and tenants.
Convenience
Mixed real estate offers considerable convenience. It embraces the “live, work, and play” philosophy whole-heartedly by combining restaurants, bars, retailers, theaters, gyms, and living spaces to meet resident needs and foster community.
Many people relish and appreciate that they can come home from work, hit the gym, run home to shower and change, and zip out to meet friends for dinner and a movie — without having to move their car. Convenient. Fun. Local.
More Amenities for Employers
Companies and businesses who choose to set up shop in mixed-use spaces benefit from the range of services available, too.
Employees who work in unconventional spaces located in shopping areas or above fitness centers, for example, gain conveniences like a mid-day workout or after-work happy hour. Employers benefit by using these multi-functional spaces to attract and retain more talent and increase output.
Shift to Online Work
While the pandemic has accelerated the shift to working online, a US Census Bureau and Bureau of Labor Statistics report showed 4.7 million people working remotely prior to COVID-19. Between 2005 and 2018, remote work rose 173% in the U.S. Since March 2020, 88% of global organizations have mandated or encouraged employees to work from home. Of the companies that transitioned to virtual work, 74% plan to shift at least some of their employees to permanent remote positions post-COVID-19.
As more people transition to (or remain in) remote positions, living in a “one stop shop” environment can help to maintain a healthy work-life balance.
Built-in Shopping for Retailers
We’re all accustomed to opening our Amazon app or popping online to order something we need. Retailers, recognizing customers’ thirst for immediacy, also benefit from mixed-use developments and their “captive” audience that passes by their shops daily.
Constant, consistent foot traffic benefits brick and mortar stores seeking ways to compete successfully with online retailers. Word of mouth and that constant visibility can help these businesses cut down on marketing costs, too.
Financial Safety Net for Developers, Owners & Investors
Combining a range of asset classes on one site helps to protect a CRE investment from economic downturns. Apartment, retails, store, and other company rents generate shared revenue streams, which help to protect investments.
Because mixed use developments are zoned for multiple uses, finding new tenants becomes easier. If a fitness studio fails, an owner can replace it with a different business, like a bar or restaurant. If retail isn’t working, an activity center — like a climbing gym — might see more success and, thus, generate more income.
If the local commercial market suffers a downturn, investors with diversified portfolios still generate income from residence rental fees. Should the hotel industry soften, for example, cashflows from other properties won’t necessarily experience the same effect.
Zoning and Financial Incentives
Because mixed-use buildings qualify as commercial and residential space, owners can receive tax benefits and financial incentives unavailable for single-use buildings. Developers may reap financial advantages thanks to these monetary incentives.
Investing in Mixed-Use Developments
If you’re curious about investing in commercial real estate but aren’t sure where to start — or you can’t decide whether to invest in residential or commercial space next — the members of CREA United can help. We work in a range of verticals, and we follow the trends that enable us to guide or clients on how to expand their investment portfolios.
For many investors, mixed-use properties make good financial sense. These investors benefit from typical characteristics of this kind of property – low vacancy rates, high-quality tenants. Investors benefit from:
- Built-in clientele for commercial spaces that provide multiple income streams
- Properties in close proximity to other commercial amenities, which increases appeal and desirability
- The wide range of commercial and residential tenants lessens overall risk for CRE investors
