The Window of Opportunity for Mixed Use Property

June 15, 2020

For the past decade, real estate developers have found success by combining retail, office, and multifamily space to form mixed-use properties. Out of the 1.3 billion dollars spent on non-residential construction in the United States, 80% is attributed to mixed-use developments, according to the 2019 Construction Economic Forecast – Nonresidential report.

The demand for these developments stems from a shift in focus by developers to the consumer experience. The underlying strategy is by increasing foot traffic and the length of stay there will be an increase in sales for the development. By offering multiple asset classes developers can offset risk with no segment response the same to economic conditions. On the consumer side, the walkability and variety of services, create a desirable community for the given neighborhood.  On the downside, the high foot traffic of these mixed-use spaces means that residence rarely has privacy aside from the confinements of their room or tenant only amenities. Furthermore, they are designed in a way that amplifies interactions through a variety of services and amenities at the cost of unit square footage. These units are a far cry from the size of a suburban single-family home.

Another factor that has played into the rise of mixed-use property is design-build construction. In traditional developments, the owner will often have separate contracts for the designer and the contractor which can easily lead to schedule changes, cost fluctuations, and, litigations. The Idea behind design-build is the owner has one contract from the beginning with the designer, contractor, and all relevant parties all under one team. The design-build construction approach is considered to be the more cost-efficient, innovative, and better equipped to deal with multiple moving parts making it an attractive option for mixed-use developments.

The development caters to the live-work-play community which is loosely categorized by those who desire more central living to a variety of housing, work, and community services. Those within the community typically find this environment helps cultivate their creativity. With vast improvements in technology, it is no longer essential for cubicles in the workplace. Many mixed-use property developments challenge the norms of a typical workplace in exchange for a more fluid one. Coronavirus aside, today’s workers are equipped to set up shop at anywhere from a co-working space, to a community green space.

Now that the coronavirus has taken hold of all aspects of life a huge appeal to mixed-use environments is in question, the idea of a “fluid workplace”. Co-working spaces were the second-largest driver of leasing in LA in 2019 and are now one of LA’s most vulnerable tenants. While the short term has cause for concern. The long-term appeal remains positive as long as developers can meet the demand for a sense of community and true destination through a mix of services, features, and amenities.