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The Pros of Investing in Mixed-Use Properties

by John Brydon-Harris on November 6th, 2017

Beautiful shopping street

As expansion increases in many urban centres investors are seeing the value in mixed-use developments.

Why? The combinations of retail, office, and residential space offer many attractive qualities that investors seek. And although there are challenges with mixed-use space, the benefits may well outweigh any apparent negatives.

Here are three benefits to investing in commercial mixed-use real estate:

More efficient land use

Designing your mixed-use building with an emphasis on vertical layout will not only reduce the overall building footprint – which has the effect of keeping property taxes at a manageable level – but also will accommodate on-site add-ons, such as underground parking. This offers maximum benefit from the available space.

Future urban planning with a mixed-use building model can reinvigorate city centres on the verge of stagnation. Not only will the mixed-use building optimize usable space, but it will also provide new opportunities for employment and reinvestment into the surrounding businesses and infrastructure.

Increased opportunities for sustainability with diverse tenants

The mixed-use building also allows investors to attract and retain a more diverse tenant base when complementary businesses can be housed in the same property. This will increase opportunities for the overall sustainability of the property.

Many traditionally designed buildings are operated on a limited schedule, meaning that for several hours each night, operations within either shut down or operate minimally.

A mixed-use building, however, has the potential to operate 24/7, increasing its desirability and spreading out the draw on utilities from peak time to more sustainable levels. Furthermore, the ability to plan a balanced energy draw allows for the implementation of green innovations and other initiatives not traditionally utilized in larger-scale operations.

In the popular triple-net lease model, where operational costs are re-compensated by the tenant, the investor has minimal direct incentive to provide innovative energy-saving initiatives. Tenants, however, are seeing the increased value to themselves and are willing to pay a competitive lease rate for a longer term to remain established in a building that meets their energy and other needs.

Longer-term lease options can reduce life-cycle costs

Mixed-use properties offer lease term flexibility, which you would not find available in most traditional residential properties. Residential tenancies in most regions only allow for lease terms of up to one year. However, retail and office spaces can offer terms up to 10 years.

As a result, life-cycle costs can be reduced in a mixed-use building.

With strictly residential complexes, there is an expectation that when a tenant vacates the building, the units are painted, repaired, and updated as needed.

On the other hand, commercial units, which usually have a longer lease term, can expect a lower turnover rate, meaning the life-cycle costs of individual units in a mixed-use building are offset by the lower turnover rate in the commercial units.

If you, as an investor, are interested in multi-unit properties, discuss this asset class as an investment in neighbourhoods that interest you with your commercial real estate agent.

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