While single-use assets still have a place in the commercial real estate landscape, they are increasingly challenged by competition from mixed-use destinations which arguably fulfil a broader range of needs for their customers, often creating inspiring synergies in urban areas. However, making successful mixed-use assets isn’t just about balancing usage percentages – it’s about forging property ecosystems which reflect new ideas about working, living and playing in the same place. “There’s no point in putting together users in a building with no connection,” suggests Thierry Cahierre, Redevco’s Head of Global Asset & Development Management. “Today, a tenant doesn’t just ask which floor they are on, they want to know what the building is about, who else is in it, and what else they can do there. The days of pure office, pure retail, or pure residential schemes are over.”
Henrie W. Koetter, CEO of ECE’s new mixed-assets division, ECE Work & Live, agrees with this philosophy. “There’s not a one-size-fits-all approach, you need to dive into each unique situation and analyse what the neighbourhood is lacking,” he notes. Adds Martin Schellein, Head of Investment Management Europe at Union Investment: “A good mixed-use concept is more than the sum of its parts. It’s about generating synergies between the different types of use to create a 24/7 destination.” Union Investment purchased Mercury Helsinki towards the end of 2019, a mixed-use scheme which fuses offices and retail uses on a prominent corner location in the centre of the Finnish capital. The anchor tenant is fast fashion giant Zara, while the biggest office tenants include strong covenants in the shape of eQ and the OP financial group. Similarly, the firm’s exciting FOUR Frankfurt project is a 100 square metres office tower which will offer compelling retail at ground level, to create a whole which is greater than the sum of its parts.
A good mixed-use concept is more than the sum of its parts. It´s about generating synergies between the different types of use to create a 24/7 destination.
Mixed-use concepts attractive for cities and investors alike
Yet while retail is often the “glue” in urban schemes, backed by ICSC research which suggests it has the most synergies with other asset classes, the new science of mixology is also giving rise to schemes which discover unexpected combinations. Lisbon-headquartered Sonae Sierra has had success incorporating multiple hospitals and health clinics into its malls, the latter surfing the wellness wave.
But it’s residential that often puts the heart in mixed-use schemes, driving the revitalisation of neighbourhoods and responding to planning directives seeking smart, often vertical solutions for housing shortages. Union Investment’s spectacular Y-Towers development in Amsterdam will comprise a 101-metre-high residential tower with 174 apartments, flanked by a high-rise Maritim-branded conference hotel with 579 rooms.
While responding to what end-users wants clearly requires a bespoke approach to each site, there are also some powerful, broader trends at play. More and more people are moving into urban areas than ever before, with the United Nations suggesting that there will be at least 662 cities with at least a million inhabitants worldwide by 2030, as compared to 467 in 2015. These trends create all kinds of pressures on housing and transport, with the latter already inspiring new mobility solutions. As car-ownership declines, accessible, urban locations with good public transport connections are in high demand with busy citizens seeking to fulfil a variety of tasks from single journeys, or those wanting to live in locations with a potent range of services right on the doorstep. “Mixed-use allows for commercial spaces to hold a higher social value when they are blending working and living functions. This helps create a stronger community feeling,” suggests Antonio López, Senior Architect TTDesign / Multi Corporation. Multi Corporation, which has been created mixed-use assets for over 40 years, recently concluded work on Forum Rotterdam, a major inner city redevelopment project in the heart of the port city which successfully fuses 64,000 square metres of shops, food & beverage outlets, fitness, offices and residential units. Similarly, in Lille, Redevco is currently transforming a single-use retail asset into a mixed-use scheme, Le 31, which will include 2,400 square metres of retail, 1,700 square metres of food and drink outlets, 5,200 square metres of leisure activities, plus 8,000 square metres of office and Unofi-branded co-working space. There will also be a 120-room Okko hotel and 600 parking spaces. Says Cahierre: “The F&B and leisure parts help tie the scheme together, providing amenities for all the tenants.”
The days of pure office, pure retail, or pure residential schemes are over.
Wohnen, Arbeiten, Einkaufen und weitere Angebote bieten viele Synergien
Housing, offices, retail and other amenities create exciting synergy
The financial argument for these kinds of schemes is also compelling. “For investors, mixed-use can reduce risk by sharing financial commitment across different asset types, and create different rental income streams,” notes López. Apart from the built-in diversification hedge, mixed-use assets tend to exploit land-plots in increasingly vertical and ingenious ways. Mark, the company formally known as Meyer Bergman, has been scaling its urban mixed-use strategy across multiple downtown conversion projects in Germany, the Netherlands and France. According to CEO Markus Meijer, CEO of Mark, “we see this specialised platform approach as being the future of institutional investment into real estate, with investors wanting a clear and focused narrative around the opportunities that have been created by structural shifts in the way we live, work and shop.”
It is also evident that the global pandemic has further moulded what users now want from buildings. “One of the most important lessons of 2020 is that digital technology has radically changed the lives of millions of consumers. We are continuously on the lookout for new solutions to keep our locations attractive, safe and desirable, so people will continue to visit our assets,” notes Multi’s López. “The trends were already suggesting a new way of working – flexible hours and home working – and these trends have been accelerated.” It is no wonder that the mixed-use wave is attracting new market entrants. Atrium European Real Estate, a former specialist in CEE shopping centres, with a focus on Warsaw and Prague, is currently exploring how it can transform some of its shopping centres into mixed-use schemes.
CEO Liad Barzilai says: “There is a lot of interest in creating better places in city centres and city authorities are happy to work hand-in-hand with developers.” He adds: “Mixed-use is a story. You’re selling a dream – not just to your tenants – you’re selling a location, a destiny – to their clients as well. The right combination is vital.” However, Barzilai cautions against property people seeing this as a wholly new trend. “Even in single-use assets, like shopping centres, getting the mix right was always crucial. So achieving the right synergy is already a part of our toolkit,” he concludes.
Symbiotic retail spaces
Established neighbourhoods feature a variety of uses. But does the business case for transforming buildings into multi-use properties stack up for retail properties? Faced with the pressure of impending vacancies, landlords and city authorities are increasingly being forced to consider repurposing retail space, especially in inner city locations.
There are many different conversion options, as demonstrated by successful examples in the US such as the redevelopment of the Macy’s building in Seattle into offices for Amazon. “Potential solutions vary widely and depend on location (peripheral or central), the physical space (particularly natural light) and financial considerations,” said Kseniya Merritt of Union Investment at a joint event with Bulwiengesa. In the US, buildings are currently most frequently being repurposed as hospitality venues, offices and multi-family apartments, as well as logistics and distribution centres. Increasing competition for space in urban areas is driving growing interest in multi-use opportunities. Former retail properties lend themselves well to utilisation as light industrial space, i.e. micro-hubs or micro-fulfilment centres, said Francisco Bähr, managing partner of Four Parx. He adds that scope for heavy logistics is restricted due to limited load-bearing capacity, low ceiling heights and poor delivery access. The impact of noise on the surrounding area is also a factor here. The transformation process we are now seeing could prove a major opportunity for revitalising inner cities, with conference hotels already being part of the trend. Housing that has disappeared from city centres could make a comeback in the form of apartments and sheltered accommodation – reprising the role of the city as a place where people meet and spend time, rather than just visiting shops.
The general view at the event was that going forward, cities will have to embrace mixed-use developments in order to remain efficient, sustainable and viable for the future. The more flexible the space, the better, because demand continues to evolve at lightning speed.
By Isobel Lee