US real estate investors own 74% of the country’s rental market. Many of these investors choose to buy residential or commercial property. But did you know that mixed-use properties provide the opportunity to own both?
Mixed-use properties are real estate developments combining residential spaces and commercial businesses. Some mixed-use properties aren’t developments at all, but single buildings.
Want to know why investing in mixed-use buildings and developments is a smart move in 2021? Then keep reading to learn more about these properties and the pros and cons of investing in them.
Types of Commercial Mixed-Use Properties
A real estate investor would generally distinguish between three types of mixed-use properties. These are horizontal, vertical, and combination style properties.
Here’s what you need to know about each of these categories.
Horizontal mixed-use properties incorporate retail, office, and residential spaces. These businesses may not be located in the same building as with vertical properties. But they are all within walking distance of each other.
For example, Port Convington in Baltimore, Maryland is a horizontal mixed-use redevelopment. The project covers 235 acres and features residential space, office units, and retail.
Like horizontal properties, vertical mixed-use properties incorporate retail, office, and residential spaces. The residential space could also be a hotel space.
What makes these properties “vertical”? Each business type occupies a separate floor.
For example, retail stores might be on the first floor with office spaces on the floor above. The residential function would be on the third floor.
Brickell City Center in Miami, Florida is a vertical mixed-use property. It features 5.4 million square feet worth of towers. Each tower hosts restaurants and condominiums among other spaces.
Many mixed-use properties feature a combination of both horizontal and vertical styles. These properties are also known as “walkable” mixed-use properties. That’s because they’re typically surrounded by the “core” property.
The core of a combination mixed-use property is usually an outdoor area. This area could encompass an open-air market or plaza. Some combination properties even feature event spaces as the core property.
Chicago’s 53-acre Lincoln Yards development is an example of a combination multi-use property. It incorporates hotels, retail shops, office spaces, and residential space. The core property is a soccer stadium.
Benefits of Mixed-Use Properties for Investors
By now, you may be wondering: why should I invest in mixed-use property? There are major benefits you can gain from adding mixed-use to your portfolio. Keep reading to learn about the top three of them.
Mixed-Use Properties Are Tried and True
Mixed-use properties have seen a resurgence in popularity since the late 1990s. But these types of properties are tried and true, having been around for centuries. For example, Victorian-era Main Streets featured residential homes above offices and retail shops.
Today, Main Street isn’t the only place you’ll find mixed-use developments. New construction live-work properties are increasingly popular. So, too, are projects converting old malls and former retail districts.
Demand for Mixed-Use Developments Is on the Rise
Businesses and tenants alike love mixed-use properties. Retailers have long known that proximity to the customer base boosts sales. And 53% of customers prefer the convenience and sustainability of shopping locally.
All of these factors have combined to greatly increase demand for multi-use spaces.
Why? Because with more demand, you can be pickier about tenants and lessees. You can also reduce turnover since your tenants won’t want to give up their coveted spots.
Mixed-Use Is a Less Risky Investment
Multi-use developments offer high demand and portfolio diversification. For these reasons, multi-use property investors incur much less risk. These factors also make mixed use property loans much easier to obtain.
As we mentioned, tenant retention is high in mixed-use properties. But what if you do lose one tenant? The revenue earned from your retail and office spaces will offset the loss.
Plus, retail stores in mixed-use developments tend to resist the decline of brick-and-mortar. Businesses can attract more foot traffic and create long-term repeat customers more easily.
Cons of a Mixed-Use Property Investment
As with any real estate investment, multi-use properties aren’t all good. Here are two disadvantages to keep in mind when buying your first mixed-use property.
Mixed-Use Property Investors Must Choose the Right Tenants
The best mixed-use properties consider the interests of both residents and commercial tenants. Failing to plan for what type of development you’re creating could up your turnover rate. And when revenues depend on low turnover, this issue could also decrease your profits.
For example, empty nesters may be willing to spend the big bucks on residential property. Yet, these tenants aren’t right for a mixed-use property featuring nightclubs and trendy retailers.
Traffic Around Mixed-Use Properties Can Be a Turn-Off
People enjoy mixed-use developments for their communal atmosphere. But what if your property features too little parking space or public transportation options? Traffic could become a major turn-off to prospects.
Luckily, this problem is an easy fix. Just make sure to provide ample parking for residents, commercial tenants, and visitors. Better yet, develop your mixed-use property near a major public transport hub.
More Real Estate Investing Tips for You
Mixed-use properties are experiencing high demand right now. Plus, these developments offer low tenant turnover and a centuries’ long track record. You can’t go wrong choosing a multi-use real estate investment for your portfolio.
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