Real Estate Trends: Mixed Use Properties

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Keen real estate investors keep an eye on industry trends to help ensure the best possible return on their chosen assets, and mixed-use properties are proving to be an attractive option for both individual investors and REITs. By combining commercial and residential use in one investment, these types of properties create a sort of instant diversification, but there’s more to know about this type of real estate. In today’s real estate market, mixed-use properties can be a particularly interesting choice. Let’s take a closer look at what makes this trend so popular.

Mixed-Use Real Estate Defined

A mixed-use real estate development typically consists of a building or buildings with both residential dwellings and some type of commercial rental space. Upper floors might consist of a mix of apartments in different sizes to accommodate singles, couples, and families, while the first floors could include space for retail stores, restaurants, and other businesses. Some mixed-use properties might also add in office spaces on some floors.

Large skyscrapers in many cities are mixed-use properties, with a combination of all the above brought together in one building. However, smaller developments, such as those consisting of only four or five floors, can also be created to serve multiple purposes.

Benefits of Mixed-Use Real Estate Investing

By combining commercial and residential rental spaces in one building, investors can create dependable revenue streams from month to month and year to year. Retail spaces can be leased out for longer terms, helping ensure consistent cash flow, and the proximity of stores and restaurants to the apartments in the building can make the space more attractive to prospective tenants. These benefits can lead to lower vacancy rates, contributing to a better return on the initial investment. Some other benefits of choosing mixed-use real estate include:

• Reduced risk: a mixture of uses can protect against vacancy and tenant turnover
• Mutually beneficial financial relationships: commercial tenants renting a space in a mixed-use property have instant access to a customer base (the residential tenants)
• Conserving land in densely populated areas: mixed-use properties built to make use of vertical space combine essential services (housing and access to goods and services) without creating more urban sprawl

For investors, choosing mixed-use spaces in secondary and tertiary markets can answer needs in those communities that haven’t already been met. A development of several mixed-use buildings on a single block, for example, can create a walkable community with easy access to amenities that residents did not have access to previously. To learn more about the other benefits of investing in secondary and tertiary markets, check out our previous blog post. 

Why Mixed-Use Developments Are Trending

These types of properties are not new big cities, but there is an increasing demand for them in smaller markets. The COVID-19 pandemic is thought to have accelerated the demand, and there are several reasons for this. With more people working from home, there is a greater need for quick access to goods and services. A home office in an apartment with restaurants, fitness centers, and grocery stores ensures that an individual working from home can meet their essential needs without having to go very far.

Leasing part of the mixed-use building to a business offering co-working spaces can attract new work-from-home tenants by providing them with access to conference rooms and professional office equipment. 

Mixed-use developments can help increase the walkability of a neighborhood, provide much-needed housing in competitive markets, and attract tenants looking for easy access to local businesses, and all of these factors contribute to the desirability of these assets. The developments are no longer just seen in big cities; they’re also popping up in suburbs and other smaller markets too.

Whether in booming urban areas or emerging markets, these developments are trending more towards multifamily residential apartments with strategically selected commercial retail space instead of office space, which is another result of the shift from working in offices to working from home. 

What it Means for Investors

With potentially reduced risks for investors, mixed-use assets provide an interesting option for diversifying a portfolio. As with any investment, it’s important to talk to a financial expert before making any decisions. Choosing a REIT with mixed-use holdings can be one option, but you can also select a REIT with a diverse portfolio of multifamily assets in markets where these types of developments are in the works. The proximity to robust commercial spaces and attractive residential properties can help boost the value of all assets in a community. 

Source: DiversyFund