The Shard in London, 310 meters high, is one of the tallest multi-use buildings in the world.
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24/7 instead of nine-to-five

Living in city centres is now more popular than ever, office workers prefer urban locations, and industry also wants to shift its production sites into urban areas. Hence the popularity of mixed-use buildings, a property type often seen in major international cities. Are they becoming a new asset class?

A new type of property is becoming increasingly popular in Europe’s largest cities. It can be found in London as well as Paris. It has been sighted in both Stockholm and Rotterdam. And “flip-flop buildings” are even causing a stir here in Germany. They are buildings where people can live and work, shop and go to the gym, relax or study. Buildings with as many uses under one roof as were once found along an entire street. Lifts replace pavements, meaning that occupants don’t even need to change out of their flip-flops to go from their apartments to their offices and then on to the fitness club in the evening – with only a few storeys between work and play, there’s no time spent on commuting in mixed-use buildings. They are efficient and conserve resources, making them cool, hip, and popular with many people. That’s because everything that in conventional mixed-use districts tends to grow quickly into a village is integrated into mixed-use properties.


One of the most architecturally spectacular representatives of this type of development can be seen in Rotterdam. It is a fascinating one-of-a-kind project that has won numerous awards and was designed by the Rotterdam architectural firm MVRDV as a new nucleus for what was previously an urban-planning no-go area. Queen Maxima of the Netherlands officially opened the building in 2014. The Markthal is 120 metres long, 70 metres wide and 40 metres tall, and is the first covered public market in the Netherlands. This colossus can be classified as a hybrid of covered market and multi-storey building. The market, which totals 4,000 square metres, is shared by 96 stalls and eight restaurants. The two parallel blocks contain 128 owner-occupied apartments and 102 rental apartments ranging from 80 to 300 square metres. Offices are located on the first two storeys.


Any number of synergies

“Cities are the heart of our societies, our cultures and our economies, yet so many of them fall short of our expectations,” the MVRDV architects have observed. With their own work, they hope to offer a high quality of life for residents and users and also create added value for cities. The team led by the firm’s founders Winy Maas, Jacob van Rijs and Nathalie de Vries has certainly succeeded in that, as evidenced by an impressive number of awards. But the main thing is that the Markthal, an architectural marvel with an impressive 3D façade, is also very popular with users. All space has been let or sold, and there were a million visitors during the first three weeks alone. That’s no surprise, since the planners did everything right where the often-thorny issue of accessibility is concerned: those who do not wish to use one of the 1,200 parking spaces for cars can travel directly to the Markthal by tram, bus, underground, or train. 


10%

is the suggested minimum percentage of useful space for each type of use in a mixed-use property.

“The Markthal in Rotterdam fulfils all of the criteria for a mixed-use property,” says Thomas Beyerle, Managing Director at Catella Property Valuation, in praise of the Dutch project. He notes that each use occupies at least 10 percent of the space and is not accessible exclusively to residents. In addition, there are spaces for use by the public and any number of synergy effects among the individual uses. According to Beyerle, the urban density in the building and the excellent transport connections are characteristic of a genuine mixed-use property. He provided an initial overview of this type of property – including definitions and representative projects – in a study published in early 2015. His conclusion: mixed-use properties are players in a new urban era which will eliminate the functional separations left by industrialisation. This means they represent a return to cities shaped by urban growth that feature different functions in spatial proximity. 


International investors aren’t as afraid of coming into contact with other users, because they are familiar with mixed-use developments from their home markets.
Andreas Völker, Managing Director, BNP Paribas Real Estate Consult

There is a general shortage of undeveloped sites in city centres, so spatial proximity is often achieved by way of vertical solutions. One of the tallest representatives of this trend can be found in London: the mixed-use tower The Shard, completed in 2012. This skyscraper is 310 metres high and 87 storeys tall, with 72 habitable floors and 44 lifts. Star architect Renzo Piano organised the various uses by level: restaurants and shops are located in the basement level; offices of the auditing firm PricewaterhouseCoopers, around 55,000 square metres in size, occupy floors 4 to 28; and there are additional restaurants and exhibition spaces on floors 31 to 33. Things get luxurious above that: the Shangri-La hotel chain runs a five-star operation with 200 rooms covering 18,000 square metres of space on floors 34 to 52; then come 13 floors of luxury apartments whose owners, according to newspaper reports, paid in the high double-digit millions for them. A property class has been created that is no longer unique in London. Architect Piano is already working on the next high-rise to offer multiple uses under one roof. The Shard’s little brother will be built next to Paddington Station, but it will be “only” 224 metres high, with 65 storeys and room for 200 apartments, shops, offices, restaurants, and cafés. “We believe this exciting proposal will tap into the potential of Paddington and will prove to be a major catalyst for the continuing enhancement of the area, especially Praed Street – in much the same way that The Shard did for London Bridge,” says Irvine Sellar, Chairman of the investor Sellar Property Group. 


A similar but smaller project is on the starting blocks in Frankfurt am Main. The New York developer Tishman Speyer is planning a mixed-use tower 185 metres high with some 60,000 square metres of usable space on the former Metzler bank site. Apartments, offices, restaurants, shops, and public amenities will be housed in a high-rise at Große Gallusstraße 16–18. Tishman Speyer chose the Copenhagen architecture firm Bjarke Ingels Group for the design. “We want to create a new type of high-rise, a building that will be open and approachable,” said Florian Reiff, who is responsible for leading Tishman Speyer’s business in Germany, at the presentation of the plans in summer 2015. He praised the architectural and urban planning approach of the project, which is also a known quantity in New York. “The design disrupts the usual separation of work, home, and public life,” Reiff emphasised. 


A European project summary by Catella shows that current mixed-use developments are by no means always new builds, and are often revitalisation projects. For example, one of the largest urban mixed-used blocks in Paris, dating back to the 1970s, is to be completely redesigned, with existing uses reorganised and new uses added. It’s the Ilôt Vandamme complex by La Défense architect Pierre Dufau. The architects from the MVRDV firm who designed the Markthal were awarded the contract for the challenging Paris project in 2014. The reinterpretation will also feature a shopping centre, a hotel, offices, and a library. New additions include housing, a conference centre, and a kindergarten. “We want to reintroduce the human scale and bring order to the complex building,” is how the MVRDV architects describe their approach. While the Paris project site was already mixed-use, most redevelopments are aimed at eliminating a monostructure that is no longer successful and establishing a mixed-use structure.


Away from the niche

With these projects, planners and investors want to do more than get properties that no longer meet the needs of the market in shape for a new value creation cycle. They often involve freshening up the urban surroundings and switching from nine-to-five properties to buildings that operate around the clock. The Klara Zenit project in Stockholm offers a good example of several building transformations of this kind. The Swedish branch of the international firm Equator European Architects has upgraded a monolithic post office building from the 1970s to a mixed-use property featuring offices, shops, and some 100 rental apartments. The unusual thing about this project is the half-dozen freestanding apartment buildings that were erected on the gigantic roof during conversion of the building. They signal better days ahead for a district that had been considered problematic: all new builds in the district must now include a certain percentage of residential space. 


Mixed-use properties in Europe – both new construction and redevelopments – still occupy a niche. But that could change: “We can assume that there will be more mixed-used properties in the future, particularly in large cities,” says Thomas Beyerle of Catella. He expects a rearrangement of large cities. There will be more mixed-used buildings closer to the city centre in the next 10 to 20 years, he says, and single-purpose land use will be found only on the periphery. That is not just because users and town planners are eager for spatial proximity between work, home, and play. It also makes sense both economically and environmentally. “It’s not profitable to own properties that are unused for a large part of the day,” says Peter Nageler, architect and partner at the Vienna architecture firm Nonconform. 


Developer Tishman Speyer is planning a mixed-use tower 185 metres high on the former Metzler bank site in Frankfurt am Main which will house apartments, offices, shops, restaurants, and public amenities.
Bjarke Ingels Group (Simulation)

An end to underutilisation and vacancies appears to be in sight. It isn’t just apartment dwellers who are flocking to city centres. So are parts of the industrial sector. “Increasing digitalisation means that production processes now take place on a smaller scale and emit fewer emissions. Manufacturing companies thus want to – and are able to – return to the city,” says Elmar Schütz, Head of Project Development at Aurelis Real Estate. While district developers are quite relaxed about the trend toward more mixed-use buildings, asset managers often point to the resulting increase in the effort and expense involved in managing the properties, particularly where apartments are concerned. “As a matter of principle, we can manage all asset classes, including mixed-use,” says Cathrin Schwartz, Head of Asset Management Europe at Union Investment Real Estate GmbH, whose portfolio includes large mixed-use properties such as the Centre d’Affaires Paris-Trocadéro, with offices, shops, apartments, and restaurants, or the Emporio in Hamburg, which has offices, shops, and a hotel as tenants. “But managing many smaller mixed-use units is relatively labour-intensive, which makes it expensive.” Elmar Schütz of Aurelis also acknowledges this fact: “The operating costs and the effort involved in providing support are higher for mixed-use properties. It’s not so easy to achieve economies of scale.” Investors are also somewhat conflicted as they eye this new type of property. Diversification at the building level thanks to the different uses seems appealing and reasonable. “But conservative investors in particular still prefer single-use properties,” reports Stephan Allner, Managing Director of Wohnkompanie in Berlin. 


One of the current construction projects of the company, which belongs to Zech Group, is the Max und Moritz mixed-use complex in Berlin-Friedrichshain. Its 463 apartments, offices and shops are being built north of the East Train Station and will be completed by 2017. For reasons of fire safety and noise abatement, uses will be divided between two towers instead of mixed, and there will be no common infrastructure provision. Max und Moritz will still form a single unit as an investment product. “We deliberately decoupled the commercial and residential uses, because residential users have considerable opportunities to raise an objection and commercial tenants are always at a disadvantage,” explains the developer Allner. He highlights a sensitive issue that the largest real estate association in Germany has also been dealing with since autumn 2015. 


Managing many smaller mixed-use units is relatively labour-intensive, which makes it expensive.
Cathrin Schwartz, Head of Asset Management Europe at Union Investment Real Estate GmbH

According to the German Property Federation (ZIA), it will not be possible to create lively cities with spatial proximity of housing, work, commerce, and culture without amending the Building Use Act (Baunutzungsverordnung, BauNVO), the Federal Emission Control Act (Bundes-Immissionsschutzgesetz, BImSchG), and the Technical Instructions on Noise Abatement (TA Lärm). “The current rules and regulations constantly create stumbling blocks for new urban planning ideas,” says ZIA President Andreas Mattner. The Federation is thus urging the introduction of a new zone category called “urban mixed-use zone”, with the understanding that this would “facilitate mixtures of typical urban forms of housing and work.”  However, even under the current rules, developers are finding ways to create top-notch mixed-use properties, and they’re being snapped up. Primarily by foreigners, as Andreas Völker has noticed. “International investors aren’t as afraid of coming into contact with other users, because they are familiar with mixed-use developments as a building type and asset class from their home markets,” says the Managing Director of BNP Paribas Real Estate Consult. 


But Annette Kröger, CEO of Allianz Real Estate, isn’t about to let the new stars in the real estate sky be snatched out from under German buyers’ noses. “We have nothing against the trend. However, the new generation of mixed-use properties represents a new dimension, if only due to the order of magnitude.” She adds that she could certainly imagine making an investment, but given the volumes and to avoid concentration risks, it would be good to have a joint venture partner that would also invest in the property and could use its expertise to take responsibility for management. This is an approach that could be adopted by other high-volume buyers with a soft spot for mixed-use.


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