While mixed-use properties have been around for a while, their popularity has surged in recent years owing to shifts in consumer habits and societal norms. The convenience of having eateries, cafes, and stores a short walk from your dwelling appeals to many young adults globally, who prefer this lifestyle over conventional residential areas.
For investors in commercial real estate, these properties offer the advantage of portfolio diversification along with a wealth of opportunities and benefits. Continue reading to gain insights into mixed-use real estate and the compelling reasons to consider investing in this property type.
What are mixed-used property?
A mixed-use property is a type of real estate development that combines two or more different types of uses within the same building or development. These uses often include residential, commercial, cultural, institutional, or industrial elements. The primary purpose is to create a self-sustaining, diverse, and vibrant community where people can live, work, and play in one place.
The primary types of mixed-use development include:
1. Vertical Mixed-Use Development: In this type of mixed-use property, different uses are stacked on top of each other. For example, the ground floor may have retail stores or restaurants, the middle floors might contain office space, and the top floors are typically residential.
2. Horizontal Mixed-Use Development: In horizontal mixed-use developments, different uses are spread out across the same plot of land but in different buildings. For example, an apartment complex might have a separate building for retail shops and restaurants.
3. Walkable Urban Mixed-Use: This type of mixed-use development is often found in urban areas and is designed to be pedestrian-friendly. It often includes a mix of residential, retail, and office space, along with amenities like parks, restaurants, and cultural institutions, all within a short walking distance.
4. Transit-Oriented Development (TOD): These are high-density, mixed-use developments near public transportation hubs like bus or train stations. The aim is to create sustainable communities by reducing reliance on cars and encouraging the use of public transport.
5. Live-Work Spaces: These are mixed-use developments designed specifically for people who want to live and work in the same place. They might include apartments with attached offices or studios, or a building where the lower floors are co-working spaces and the upper floors are residential.
6. Mixed-Use Retail Centers: These are often shopping centers or malls that have added residential units, offices, or hotels to the retail mix.
Each of these types of mixed-use developments offers its own unique blend of benefits, challenges, and opportunities for investors, businesses, residents, and communities. They’re increasingly popular in many parts of the world as people seek to reduce commute times, promote sustainable living, and create more vibrant and integrated communities.
Investing in mixed-use properties — those that combine residential, commercial, and/or industrial uses in a single building or development — can be a profitable decision for a number of reasons:
1. Diversified Income Streams: Mixed-use properties can provide multiple streams of income from different types of tenants: residential, retail, and office. If one sector is not performing well, the others can help stabilize your income.
2. Higher Return on Investment: Mixed-use properties often generate higher yields compared to standalone residential or commercial properties. This is due in part to the multiple income streams and the premium that tenants often pay for the convenience of mixed-use living or working spaces.
3. Increased Demand: There is growing demand for mixed-use developments in many urban and suburban areas. Consumers are increasingly drawn to the convenience of living, working, and shopping in close proximity. Similarly, companies are attracted to the potential customer base living within the same development.
4. Reduced Risk: Having a variety of tenants can help spread risk. For example, if a commercial tenant leaves, you still have income from the residential units while you look for a new commercial tenant.
5. Potential for Property Value Appreciation: With the growing popularity of mixed-use developments, these properties may appreciate in value over time.
6. Community Development and Zoning Preferences: Many municipalities prefer mixed-use developments because they promote walkability, reduce traffic, and contribute to a vibrant community. As a result, developers may find zoning and permit approvals easier for mixed-use properties.
7. Lower Vacancy Rates: Because of the convenience and amenities they offer, mixed-use properties often have lower vacancy rates than traditional commercial or residential buildings.
Despite these benefits, mixed-use properties can also be more complex to manage than single-use properties, given the need to address the requirements of different types of tenants. It’s important to do your due diligence and, if needed, engage experienced property managers to effectively handle the distinct needs of a mixed-use investment.