Mixed-use developments have been on the radar for several years, and are increasingly attractive to both domestic and foreign investors. A subtle slowdown in the hot multi-family market may be attributed in part to a preference for the live/work/play environment, especially in urban markets.
Experts point out that as much as 33% of the population desires to live in a walkable, mixed use neighborhood, for a variety of reasons. The national supply of such developments is not nearly enough to meet that demand.
This type of environment, which combines residential, commercial and retail space, offer advantages to each type of tenant, as well as to the investor. Residents enjoy the convenience of having dining, shopping, and parks right near home, and retail establishments can benefit from a built-in customer base.
There are several key factors that contribute to the rising interest in mixed-use developments.
Multi-family demand has droppedWhile still brisk in many markets, overall demand for multi-family investments has eased up, causing investors to look elsewhere. This is partly due to demographics. The millennial generation, with its strong preference for central locations and easy access to city amenities, favors the mixed-use model. It enables them to leave a smaller carbon footprint, spend less time commuting, and create a sense of community.
More diversified developments entail less riskA basic tenet of diversification is that a collection of different types of investment exposes the buyer to less risk than investing in a single type of asset. A key issue in diversification is the correlation between assets, the benefits increasing with lower correlation. Mixed-use developments are diverse by their nature. Residential units can provide steady income in times when retail markets may be struggling, and the longer leases common to commercial properties create more continuity than one-year residential agreements.
Investors can in effect have 2 income streams, and be less vulnerable overall to commercial downturns or population shifts.
Residential tenants fuel demand for retail spaceBasically, the mixture of tenant types feed on each other in a mixed-use development. Residential tenants want the convenience of nearby businesses, and the presence of thriving businesses attracts new residents. Some of the specific benefits to retailers are:
Greater exposure to customersRetail businesses located near residences are seen daily by the people who live there. They’re much more likely than stand-alone stores to attract interest and foot traffic.
Easier code and safety complianceMixed-use developments are built and maintained to residential standards, and they’re more likely to already comply with the strictest standards for things like fire alarms, wiring, ventilation, sprinklers, handicap access, and elevator codes and inspections
Better property managementProfessional management services are necessary for mixed-use properties, to address the diverse needs of the entire community. In general, this means more accessible and responsive performance and support.
As the popularity of mixed-use spaces continues to grow, we look for a corresponding increase in investor interest. Along with their advantages to society –more efficient transportation and parking, less fuel dependency, and more people walking- these developments present solid advantages to real estate investors.