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5 Reasons Why Mixed-Use Developments Are On The Rise

Published on Thursday - September 29, 2016

Mixed-use developments are a combination of residential and non-residential buildings that are planned and developed within a city, municipality and/or state. These real estate projects can range from a single building to an entire neighborhood, and are typically developed to be responsive to a specific environment. Along with infusing commercial and industrial development with residential living, mixed-use development projects aim to offer a variety of benefits: improvements in home affordability, walkability between housing, workplaces and other amenities, and stronger neighborhoods. Done right, mixed-use developments are designed to not only incorporate various types of real estate together, but complement them.

Why Mixed Use Developments Are In High Demand

Mixed-use development projects

The mid-2000s saw an eruption of mixed-use developments sprout up across the country, as developers and investors sought new ways to blend urban-style living with walkable communities. Although popularity simmered in recent years, demand for mixed-use developments is back with a vengeance in 2016, attracting both domestic and foreign investors, as well as millennial homebuyers.

According to the National Association of Realtors (NAR), first-time homebuyers made up 32 percent of all homebuyers in 2015, with nearly 67 percent of those buyers being millennials (ages 18-34 years old). That said, one of the primary traits every millennial homebuyer is seeking is walkability. A 2015 NAR survey revealed that millennials prefer walking as a mode of transportation by 12 percentage points over driving. In addition, millennials also preferred living in housing within walking distance of shops and restaurants, and a shorter commute.

“Realtors don’t only sell homes, they sell neighborhoods and communities,” said NAR President Chris Polychron.

“Realtors aid in improving and revitalizing neighborhoods with smart growth initiatives, helping create walkable, urban centers, which is what more Americans want in their neighborhoods. While there is no such thing as a one-size-fits-all community, more and more homebuyers are expressing interest in living in mixed-use, transit-accessible communities.”

Although millennial homebuyers comprise a large portion of demand for mixed-use development projects, the attraction is mutual with a cross-section of people. Along with every residential product type a person could need, mixed-use developments essentially provide a deeper sense of community, which is something every type of homeowner wants.

The following examines five reasons why mixed-use developments are on the rise:

1. Greater Exposure To Customers: One appealing aspect of mixed-use developments is their proximity to new clientele. Along with cultivating both a residential and commercial audience, mixed-use development projects have the power to attract an immense amount of interest and foot traffic compared to stand-alone stores. In addition, mixed-use retail tenants are generally the beneficiaries of recurring spending from local residents, including those within the mixed-use building.

As a residential redeveloper, otherwise known as a real estate investor, mixed-use development projects are ideal because they not only provide income streams from both residential and commercial tenants, but opportunities for more development possibilities as well.

2. Better Property Management: Another reason for the growth in mixed-use developments is the benefit of better property management. Mixed-use developments encompass a blend of residential, commercial and industrial real estate, so a proficient management service company is generally necessary to address the diverse needs of the entire community. These benefits typically include higher quality tenants, shorter vacancy cycles, better processes, and improved support.

3. Existing Amenities: Probably the most enticing aspect of mixed-use developments is their location. Generally speaking, these properties are situated in densely-packed areas that are in close proximity to existing amenities such as schools, libraries, and parks. Today’s homebuyer has a strong preference for central locations with easy access to city amenities, and mixed-use developments work with these trends to create connected and inclusive communities.

4. Less Risk: Although benefits for mixed-use developments generally pertain to homebuyers, there are several advantages from a residential redeveloper perspective — the most common being diversification. Because mixed-use developments offer the best of both worlds (residential and commercial real estate), investors are able to reduce the amount of risk their real estate portfolio is exposed to. That said, diversifying can help investors in minimizing the total impact of bad assets on their investment portfolio, including the ability to counterbalance the loss. Whether commercial downturns or residential, mixed-use developments are considered to be a relatively safe bet. Along with providing less risk, mixed-use developments offer higher income, cash flow, longer leases, and less competition, which are ideal when seeking to diversify your portfolio.

5. Walkability/Transportation: Far and away the biggest benefit associated with mixed-use developments is walkability. Last year, the NAR surveyed 3,000 adult Americans living in the 50 largest metropolitan areas to understand their preferences to transportation. The survey revealed that, as a whole, Americans prefer walkable communities more now than they have ever in the past. In fact, 48 percent of respondents said they would prefer to live in communities containing houses with small yards but within easy walking distance of community amenities. For the majority of today’s homebuyers, walkability is at the top of their list, which is why more and more builders are constructing mixed-use developments in order to accommodate demand.

In today’s real estate climate, the return of mixed-use developments isn’t a surprise, especially considering the increase in millennial homebuyers and their evolving criteria for homes. That said, the rebirth of mixed-use developments is upon us, and investors, including commercial redevelopers, should take note when considering their next investment.

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