Why Mixed-Use Properties Are the Future of Commercial Real Estate
Last Updated: February 06, 2o25
Steve Nabity
February 06, 2025
Introduction
If real estate properties were alive and at a party, the mixed-use property would probably be the most popular. Why? Because it would always have the perfect blend of work and play!
Mixed-use properties in commercial real estate are those with residential, office, retail, and recreational spaces. Such properties are increasingly becoming popular because the current generation prefers them. Millennials and GenZ prefer convenience and lifestyle integration. They want a comprehensive experience where they can walk from their residence to work and then relax after a long day. There is a shift towards urban living with spaces that combine live, work, and play.
In this article, we will discuss changing consumer preferences, why mixed-use properties make commercial sense, and what some of the challenges are in developing/managing mixed-use properties.
Urbanization and Changing Consumer Preferences
Urbanization has led to lifestyle changes. There is an increasing preference for spaces that blend different aspects of an urban citizen’s life. This means a seamless blend of live, work, and play. GenZ and Millennials value easy access to work, recreation, dining, and retail spaces. They tend to look for environments that support the flexibility of blending various facets of their lifestyle.
There is also an aspiration among the younger population for a flexible yet well-connected lifestyle where most areas of interest are within walking distance. Communities, where residential, work, retail, dining, and entertainment spaces coexist, promote a more sustainable lifestyle. Hence, they tend to be very popular. If such communities are built on a large scale, they can significantly shape the urban development of cities. Developers will have to adapt their approach to cater to the evolving needs of the modern citizen.
Maximizing Property Value and Revenue
Mixed-use properties typically include a combination of commercial, residential, and retail real estate. Each one of these belongs to a different sub-segment of real estate. The income generation and the financial dynamics for each one are different. Residential leases are different from commercial or retail ones. The profile of the tenants is different too.
The good thing about earning income from different types of real estate is diversification. Firstly, the owner/investor is not reliant on a single or a few tenants. If some of them default, it does not lead to a complete halt in the cash flow. Secondly, if one sub-segment of real estate goes through a downturn, another sub-segment may offset it in some way. If there is a pandemic, for example, and retail businesses face challenges, people still need a place to stay. So, residential might keep the income flowing in.
Single-use spaces like an office building or a shopping center can pose the risk of a sub-segment-driven downturn. However, mixed-use properties can be less vulnerable to market fluctuations and may offer a more stable source of income for investors/owners.
Economic Resilience and Diversification
Let us talk a little more about how diversification of real estate investments leads to higher economic resilience. If there is a commercial slowdown, as pointed out above, then residential real estate can provide steady income and balance out the volatility. Similarly, if there is a slowdown in the residential segment, a commercial or retail property might balance out the losses as businesses still need to operate. Much depends on the type of tenants and the kind of commercial or retail leases at a property. But, the benefit of diversification exists.
As an investor, the ultimate goal is to create a low-correlation low-volatility portfolio that does not have wild drawdowns. Investors spread their risk by investing in equities, bonds, real estate, gold, and other asset classes. Within real estate, a resilient portfolio can be built by considering mixed-use properties.
Efficient Land Use and Sustainability
Mixed-use properties have the potential to make more efficient use of land by combining residential, commercial, and retail spaces at a single location. It can lead to better planning and better development of common areas. In an urban environment where space is limited, such efficiency can be very beneficial for all the stakeholders.
Efficient use of space also helps preserve the surrounding natural environment. Incorporating green building standards like energy-efficient systems, waste-reduction practices, water-conservation systems, and sustainable materials can reduce the carbon footprint and contribute positively to the environment. Eco-conscious tenants and investors may find such well-planned sustainable mixed-use properties an attractive proposition. Ultimately, the longer-term viability of the property is enhanced. Cities that are looking to become more sustainable may also prefer the development of such properties.
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Enhancing Community Engagement and Convenience
Mixed-use properties have the potential to foster a stronger sense of community as they seamlessly blend residential, retail, and commercial spaces. They create a comprehensive environment where people can work, live, and socialize in close proximity.
The need for long daily commutes is eliminated as people get easy access to all their essential needs within walking distance. More people frequenting retail, dining, and entertainment spaces can generate a more vibrant atmosphere. Frequent interactions among community members can lead to a stronger sense of community. Engagement levels go up not just for people, but also for businesses. Increased visibility and social interaction can ultimately benefit the community as a whole.
Attracting Tenants and Long-Term Occupancy
Mixed-use developments consist of a variety of properties. So, they tend to attract a broader range of tenants. The presence of a variety of people appeals to many types of businesses too. So, more variety of businesses is great for tenants as they get more choices. More variety of people is great for businesses looking for footfalls. Convenience and better business prospects are what a mixed-use development can offer.
Mixed-use developments also have the potential to influence lease terms. If the residents are happy with the convenience and the choices on offer, they may be willing to commit for a longer duration. If businesses like the prospects of having steady footfalls, they may also be looking at locking in rents for a longer period. The tenant retention rates may also go up and there may be lower lease turnovers.
Adapting to the Post-Pandemic CRE Market
The pandemic has taught us a few things. Besides knowing the importance of good health and well-being, the pandemic has taught us to get the maximum done from our homes. Whether it is working from home, shopping from home, or working out at home, the lockdowns have shown us a way. In the post-pandemic world, the trend of blending work, living, and recreational spaces continues. The flexibility and convenience are something the younger generation prefers.
Mixed-use properties are well-positioned to benefit from this trend. Developers are incorporating co-working spaces, communal areas, and offices/work rooms within residences in their projects. The evolving needs of the community are being recognized as developers seek to offer comfort and productivity in their developments.
Challenges and Considerations for Developers
Developers face a unique set of challenges when building a mixed-use property. First, they have to navigate zoning regulations that vary across regions. Second, financing can also become complicated because multiple revenue streams can complicate the underwriting and lending process. Managing tenants from diverse backgrounds and with different space requirements requires expertise and an ability to balance the diverse needs of those tenants. Compatibility with the overall development has to be kept in mind at all times.
The planning and design of the overall development that is in compliance with local laws and zoning regulations is challenging. The planning also has to account for infrastructural needs like parking spaces, utility systems, and transport access for a diverse set of tenants. Developers of mixed-use properties have to be able to think long term and be flexible when conceptualizing such projects.
Conclusion
Walkable communities with multi-use spaces seem to be the future of commercial real estate. Such developments have the potential to transform urban development. For investors, property diversification can work wonders when it comes to portfolio management. Millennials and GenZ are driving a shift in how we think about our living, working, and entertainment spaces. The real estate of the future will reflect this philosophy and developers have an opportunity in front of them.
Investors too have an opportunity to participate in this evolution. You can learn more about mixed-use real estate investing or just real estate investing by checking out Skyline Point Capital’s website. We encourage you to visit our content library which is filled with learning resources. Feel free to give us a call and discuss anything related to investing or real estate.
