Mixed-Use Development: A Growing Trend for the Future

Cities around the country are seeing a resurgence in mixed-use development. A resurgence? Yes. Merely a century ago, most development was concentrated in urban areas where people walked from home to work or shop. With the arrival of automobiles, however, that trend changed as Americans left cities and headed for the suburbs. Now, the pendulum has swung back to favor walkable urban areas even in the suburbs. Consequently, mixed-use development is popular again.

What is Mixed-Use Development?

As the name suggests, mixed-use refers to developing buildings and communities that blend business, retail and residential in a pedestrian-friendly environment. Sometimes this type of development is known as a Live-Work-Play community, because tenants, visitors and residents coexist in a neighborhood that supports all facets of life.
Generally speaking, mixed-use falls into three categories:

• Vertical Mixed-Use Development, where public spaces such as retail shops, restaurants and other commercial businesses are on the lower floor, while the upper floors are reserved for private uses including offices, hotel rooms or residential units
• Horizontal Mixed-Use Development is made up of single-use buildings that provide a complementary blend of business, retail and residential within a walkable neighborhood
• Mixed-Use Walkable Areas combine vertical and horizontal mixed-use in an area that surrounds a core such as an outdoor plaza for concerts, farmer’s markets and other events

What Trends Are Driving Mixed-Use Development?

Much of the growing popularity of mixed-used neighborhoods can be attributed to the desire for social connections. Despite Facebook, LinkedIn and other online social media platforms, people still inherently crave face-to-face interactions. Common areas within residential and commercial spaces allow people to meet by chance or intentionally, which promotes the strength of communities.

Similarly, people living in the residences that are part of mixed-use developments are usually quite content to have smaller personal living space in exchange for common amenities. A fitness center, swimming pool, children’s play area, a roof deck and communal kitchen with party space are often on the checklist of today’s urban dwellers looking for social connections.

They are also looking for food! Eating out, of course, is a social activity, and for busy urbanites, restaurants offering healthy choices are preferable to cooking or takeout. Moreover, mixed-use developments that have restaurants attract foot traffic at night and on the weekends, an obvious advantage for retailers in the area.

Finally, people are looking for convenience. Whether Millennials just starting out or Baby Boomers downsizing from a house in the suburbs, mixed-use residents are all looking for easy—meaning walkable—access to a variety of services including public transportation, the dry cleaner and coffee shop, and even theaters and cultural activities.

But beyond convenient, it’s also fun to live in a mixed-use development. Even if construction is new, developers often try to make the environment feel familiar and nostalgic. These neighborhoods are full of life, yet they make people feel safe and able to connect with others.

What are the Benefits of Mixed-Use Developments?

Aside from the social connections mixed-use developments foster, there are economic, environmental and health benefits, as well. One of the greatest economic benefits is the increase in property tax revenue. These communities are denser. Therefore, they are typically more valuable than a single-use development. In addition, they often save municipalities money on police, fire and trash collection services—because travel distances are shorter—and on infrastructure costs for roads and sewers in these compact developments.

Environmental benefits are largely linked to walkability in a live-work-play community. Walking reduces traffic and pollution produced by drivers. Many people living in mixed-use developments actually give up their cars, choosing to walk, bike or used public transit lines. In addition, these compact neighborhoods reduce sprawl, thereby preserving open spaces and natural resources.

The health benefits naturally stem from the more active lifestyle mixed-use encourages. “Sitting is the new smoking,” according to the latest research. Thus, people that walk instead of drive are less at risk for obesity and associated illnesses.

Does Mixed-Use Offer Advantages for a Real Estate Investor?

Because mixed-use integrates residential, retail and commercial business, real estate investors are somewhat protected in case there is a downturn in one segment of the market or another. For instance, if retail softens, then there is still cash flow from residences. Thus, a mixed-use development could diminish the affect of a poorly performing asset on an overall investment portfolio. Even when the economy is down, mixed-used developments spread an investor’s risk.

 

The information contained in this article is general in nature and should not be construed as financial, tax or legal advice.  As with any financial or legal matter, consult your tax advisor and legal counsel.