Mixed use and multi-family development are rising in popularity throughout the United States. Multifamily housing increased 8% faster than single-family housing in 2018. This is due to the changing needs and interests of the population. Among the factors that make multi-use and multi-family so appealing are walkability, flexibility, community, and convenience. These real estate needs have been created by two demographic shifts: the rise in residential spending among millennials as this generation reaches adulthood, and the retirement of baby boomers. Millennials are more concerned than ever with community, and less likely to own a car than previous generations.
As a result, they are less interested in a traditional single-family suburban home with a car and a driveway, and more interested in the affordability and location of multi-family and mixed-use complexes. This is especially ture if they’re outfitted with the kinds of amenities that they care about: retail, wellness, transportation, and sustainability. Living in proximity to other families can fit in with the community ethos of many millennials. Similarly, many baby boomer retirees whose children have left home (so-called “empty nesters”) are downsizing from their larger houses and looking for different lifestyle options. Retirees look for nearby amenities that don’t require them to go far out of their way.
The key to getting full investment value from mixed-use development is through residential/commercial synergy: the retail rents in mixed-use complexes have shown to be 20-25% above what is normally expected. A strong retail experience is also one of the keys to maintaining demand and satisfaction among the unit’s residents. Here, investors and developers that have strong experience in retail will thrive. Depending on the scale, an array of desirable retail outlets or a single highly popular store can be the critical draw for residents who prize convenience.
An additional highly desirable category of facilities for residents of mixed-use properties is wellness. Both the millennial and boomer demographics that represent the biggest factor in the growth of mixed-use properties have a strong interest in wellness, including personal training, yoga studios, spas and beauty salons, fitness classes, sports facilities and athletics equipment. Access to plenty of natural light, well-designed spaces, and social activities like singles nights can also be seen as promoting health and happiness more broadly. Facilities for bikes, such as bike storage areas and bike rental opportunities, work towards wellness and transportation simultaneously. It’s a must for residents of mixed-use and multifamily residencies to get around the area easily, and bikes can provide an active alternative or supplement to public transportation.
Depending on the ambition of the developer or buyer, they can focus on “vertical mixed use” design or “horizontal” mixed use design. Vertical mixed use consists of the full blend of residential, commercial, and retail, often with a full suite of necessary amenities in one complex. This format has many benefits, including for residents to have the convenience of retail locations and other perks close at hand, and for the investors to gain the rental premium that vertical mixed-use synergies can command. However, vertical mixed-use design can sometimes lead to overly-ambitious, hard to finance projects. It can also lead to the “master-of-none” effect where the building does not accomplish any of its many functions ideally, leading to inefficiencies and empty storefronts. The solution to this is “horizontal mixed-use” design, where units derive benefit from a mix of neighboring venues that offer the necessary amenities and complements. For horizontal mixed-use” design, choice of location is essential.