Mixed-use developments present an alluring prospect by integrating multiple uses, such as office, retail, and residential space, within a single building or general vicinity. Although there’s great potential in this type of investment, it’s important to understand that mixed-use properties pose unique challenges. These properties offer residents the convenience of having everything at one’s fingertips while creating a desirable destination for visitors and businesses.
However, projects with mixed uses often necessitate dealing with complicated zoning laws and meticulous planning to successfully incorporate diverse uses into one space. Notwithstanding the obstacles, mixed-use developments provide excellent prospects for investors and a positive return on investment.
What Is a Mixed-Use Property?
When you have recreational, commercial, and residential spaces in one easily accessible area, it’s a mixed-use property. This may include a medley of amenities, such as apartments, retail stores, restaurants, coffee shops, offices, parks, and open spaces. Sometimes, even schools and hospitals are also included. The main goal is to establish a comprehensive community that allows inhabitants to reside, labor, and interact without venturing away from the vicinity. Such communities strive to lessen dependence on personal automobiles by furnishing convenient necessities within a reasonable distance.
Multi-use properties are gaining popularity as cities prioritize constructing walkable communities that promote comfort, diversity of activities, and mutual interaction among neighbors. Analysts believe these communities foster community among residents and can benefit economically by drawing businesses and boosting property prices.
Centralized locations that bring together education, health care, and government offices are other examples of multi-use properties that cater to various community needs. Such arrangements of mixed-use buildings help to curtail traffic and foster community engagement. Mixed-use developments are increasingly gaining acceptance in cities nationwide as urban density continues to grow while the quality of life is prioritized.
Contributing Factors to Multi-Use Property Development
The demand for mixed-use developments has seen a significant increase lately, which can be attributed to several factors:
One of the significant advantages of mixed-use developments is their walkability. According to the National Association of REALTORS, many Americans prefer communities with amenities within walking distance. This is particularly true for millennials, who enjoy walking to nearby shops and restaurants.
Shifts in Consumer Behavior
The rise in demand for mixed-use developments can also be linked to changing consumer preferences. Many millennials prefer urban living and rely on public transit or walking instead of driving. However, in recent years, even baby boomers have shifted toward mixed-use properties, leaving behind the suburbs.
Increased Demand for Rental Properties
Over the past decade, the number of Americans renting apartments has risen by over 10%. For those who rent by choice, mixed-use properties offer a more practical use of space, making them more appealing.
Advantages for Retailers
Retail stores have faced numerous challenges recently, including online shopping and pandemic-related shutdowns. However, mixed-use developments offer retailers more foot traffic and greater customer access, which can make a significant difference in their success.
The Advantages of Mixed-Use Properties for Commercial Real Estate
Mixed-use properties offer advantages to investors, residents, and businesses in the following ways:
Commercial real estate investors gain much from mixed-use properties due to their potential for a more consistent income stream. The advantage stems from the fact that mixed-use properties aren’t as affected by market changes because there’s always a demand for different uses. For instance, if the recent influx of remote workers has put office space in diminished demand, a mixed-use property’s retail and residential components will still be desired.
Residents also reap the benefits of living in mixed-use properties, as they enjoy the convenience of having a variety of services and retail establishments available within the same general vicinity of their residence that are easily accessible. This arrangement can be both a money and time saver, as it reduces travel to their various amenities. Additionally, residents can develop a sense of community in a mixed-use property because they’ll interact regularly.
For a business, setting up a shop in a multi-use commercial property increases visibility and potential foot traffic, as those visiting the retail or residential sections of the property will also see and pass by the businesses. Businesses located in mixed-use properties have the upper hand in offering longer hours of operation, as they aren’t dictated by the property owner or other entities on the property.
Risks and Downsides of Investing in Mixed-Use Developments
Mixed-use developments pose certain risks that investors should consider before deciding to invest. Here are some things you want to know or look out for before investing in a multi-use property:
Higher Up-Front Investment
One challenge of mixed-use developments is the higher initial investment required than traditional single-use development projects. This is because mixed-use projects entail multiple components, such as commercial and residential spaces, that require more planning, resources, and capital to construct.
Difficulties in Financing and Management
Financing and managing mixed-use developments can be more challenging than conventional development projects because of the project’s complexity. It requires more coordination between stakeholders, such as builders, investors, and tenants.
Potential for Conflict
Mixed-use developments can cause conflicts between stakeholders, such as commercial and residential tenants. Conflict may lead to increased operational costs and lower occupancy rates. Therefore, carefully evaluating each stakeholder’s needs and expectations is essential.
Mixed-use developments are typically located in urban areas and are subject to greater regulation than traditional development projects. This can add to the overall risk of the investment and requires investors to have a good understanding of relevant regulations.
Investing in Mixed-Use Property: Tips for Success
If you’re interested in investing in mixed-use property, here are a few tips to help you be more successful:
- Location matters: When investing in mixed-use property, research the location thoroughly. Look for areas known for growth and with strong economic indicators. Invest in properties with such amenities as public transportation and walkability to increase property value and attract potential tenants.
- Rental market knowledge: Determine realistic rental prices to set yourself up for success. Fair rates for mixed-use properties can be more complicated than other commercial real estate classes.
- Diverse tenant mix: Invest in properties with a mix of retail, residential, and office space to ensure stability in case one sector declines.
The Bottom Line
Mixed-use developments have potential upsides but also come with associated risks. Consult an experienced commercial real estate professional like the team at Titan Funding to guide you through the investment process and make the best decisions for your situation. Call our Titan Funding team at 855-929-1134 or complete our secure online form to get started.