The rise and rise of mixed-use developments in the post-COVID economy

Cities have always been designed with very distinct precincts in mind. CBDs would be filled exclusively with office buildings; buzzing with life during the week but completely empty on weekends when the shopping and entertainment precincts would then come alive.

This separation divided cities into completely different zones for work and play. However, there has been a shift in the way cities are designed.

The lines between work and play are blurred as newer developments boast a diverse mix of residential, retail, commercial and entertainment spaces all in the one area.

This new style of mixed-use design is increasingly being embraced for new developments across Australia, in the city centres and suburbs alike.

And although the trend toward mixed-use buildings has been on the rise for some time, the COVID-19 pandemic has taken things up a notch.

With retail shops shutting their doors and offices all but abandoned, it has become clear that mixed-used buildings offer more than just a diverse mix of amenities for their inhabitants; they offer a clever way of hedging your bets in an unpredictable and unstable rental market.

Don’t put all your eggs in one sector

Over the past few months, we’ve seen a sharp increase in the number of plans for mixed-use developments as a direct result of the COVID-19 pandemic. Despite their growing popularity pre-COVID, there was still a segment of the market who preferred single-use developments – simply because they perceived them as ‘low risk’, given that only one type of tenant needs to be marketed in order to obtain pre-commitment for the development to commence.

However, the COVID-19 pandemic highlighted the flaw in this strategy; when a development is solely reliant on a single tenant type, the entire building is at risk when that sector goes under.

Yes, increasing the tenancy mix increases the complexity in filling that building; however, a mixed-used building provides greater agility in times of economic uncertainty. The pandemic has forced a number of large asset holders to turn toward mixed-use development as a means to insulate their assets.

And while there are varied opinions about mixed-use as an overarching solution to economic uncertainty, we are certainly seeing a lot more clients wanting to understand how it all works; wanting to know more about the various ownership and lease structures of mixed-use developments.

Diversifying assets

The assets hit hardest during the pandemic have been retail shopping centres, with numerous retail tenants unable to continue to pay rent. The majority of our current mixed-use work is working alongside major retail asset owners to implement a long-term mixed-use strategy across their sites.

But in the scurry to maintain capital values in the midst of declining valuations, we are noticing an uptick in enquiries for mixed use in other areas too - particularly the commercial sector looking to add a mix of various uses such as residential and hotels into pre-existing assets.

In recent months we’ve been working closely with clients on the strategic master planning of larger sites dominated by a singular use; looking at ways we can adjust these developments to include other uses.

Of course, it’s never quite as straightforward as simply adding residences or healthcare facilities onto an office block; there needs to be a strong consideration of the long term growth of a site and its place within the wider precinct; considering factors such as people, place, culture, transport, market demand and so on and in some cases the result may be more commercial on top of commercial! We never truly know until we work through the scenario testing alongside the data analysis.

Agility, agility, agility

While location is and always will be an important factor when looking for an asset; the science behind a mixed-use development hinges largely on agility.

Location certainly has its part to play when it comes to the appropriate proportions and density of the developments, it must be acknowledged that what may be appropriate today may need to change in the future.

Therefore, an asset that has the ability to adjust and change over time will be far more beneficial in the long term and for this to be most effective, should be considered during the inception phases. Particularly on larger sites which may be developed over a longer-term also.

The pandemic has also turned the notion of location on its head. Overnight, CBD-bound office workers were suddenly working from their own homes while Australia’s major cities looked like ghost towns. Even as life returns to normal, there’s a clear consensus that the future of work will not look like it once did.

With a higher proportion of workers expected to continue to embrace remote working options, CBDs themselves could potentially no longer have the same pull as before, ultimately leading to fewer people travelling to city centres each day for work.

Outpost offices

Increasing population, urban sprawl, more diverse company operations, better access to transport and infrastructure, and greater affordability are just some of the factors which led to the concept of satellite locations; otherwise known as ‘outpost’ commercial tenancies in city fringe districts and beyond.

Many of the outposts that exist currently are either of master-planned development sites in places like Williams Landing which are very much horizontal mixed-use developments in their own right seeking to build a community on large greenfield sites or they are satellite cities.

For satellite cities such as Geelong or Parramatta, where they have reached a critical mass, enough to support their own economy and there has been a sharp increase in land value, they are now attracting the attention of larger companies with the prospect of high growth and more affordable rents.

We had already started to see the signs of decentralisation for flagship tenants pre-COVID, but as the world is rethinking what the future workplace will look like, we are very likely going to see an increase in the number of outpost mixed-use development precincts.

And the opportunities in this context is limitless – government departments in the same building as childcare centres; suburban apartment blocks with in-built co-working spaces. We’ll see more people working, shopping and dining out closer to home; more people living within their own little communities, with fewer looking to make the long commute into city centres morning and night.

Fast-tracking the future

While CBD apartments will always have their place, under the current economic conditions we are noticing less activity in the CBD for apartment living and again, more in the fringes and satellite cities neighbouring larger city centres.

This also speaks to a broader issue of housing affordability, which is another growing development sector; one which can align with the planning and diversification of some of the larger retail sites who are considering adding residential use into the mix.

 The way cities and buildings are designed is constantly changing; adapting and evolving to meet market demand.

While the trend toward mixed-use developments and a decentralisation of workplaces has been growing sometime now, the COVID-19 pandemic has accelerated these changes – to the point where we might see changes taking place over the next 18 months or so that we weren’t expecting to see for another five to 10 years.

While we can’t say for certain what the future workplace or the future of retail might look like, it’s fair to say that people will always need somewhere to work, somewhere to live and somewhere to shop.

By including all these elements harmoniously in diverse, mixed-use buildings, developers and landlords can better insulate themselves and protect their assets during uncertain economic times.