It is unlikely that we will go back to the traditional separation between restaurants, offices, healthcare, industrial, residential and retail.
The lines between work, home, entertainment, sports and education are blurring and the next 10 to 20 years will be all about finding a healthy balance in order to create a sustainable, liveable and smart environment.
Innovation of the real estate industry globally plays a critical role in this development, specifically in urban and suburban areas where a dense and demanding population continues to grow.
With some exceptions for areas that require a dedicated set-up such as industrial, logistics, data centres or high-end and special care residential, it is unlikely that we will go back to the traditional separation between restaurants, offices, healthcare, industrial, residential and retail.
An so, mixed-use real estate is here to stay which is an important conclusion for investors, entrepreneurs and other innovators!
The simplest definition of mixed-use development is a real estate development that contains multiple types of buildings — commercial, office, retail, and residential — all intended to coexist and ideally fill different needs and provide various benefits to the people who live and work therein.
Mixed-use real estate is not new, but COVID-19 is serving as a catalyst
Developers had set their minds on mixed-use real estate for the past decade or so with modest success as both supply and demand weren’t always ready.
However, as most fundamental changes are driven by trends that have been lingering around (most of them in clear sight) for many years. It simply takes a crisis such as a pandemic to speed up those processes of change and (re)match supply and demand.
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Over the past several years, industry leaders have been diversifying sources of revenue, pursuing digital strategies, and focusing on tenant experience. The COVID-19 crisis has accelerated the need for those strategic changes — and highlighted that those that haven’t yet made such investments will probably need to catch up quickly.
Key trends
To get the most out of the real estate market, an investor needs to spot trends before they become apparent to everyone.
The need for sustainability and efficient use of space due to population growth
Most of the following trends are driven by the global ongoing growth of our population. Governments and developers are continuously pushed to focus on the efficient use of land where a lot of people can live together in a sustainable way without compromising the quality of life.
Let’s have a look at several trends that will define the next few decades.
The downfall of traditional retail
Retailers and department stores that have failed to establish a successful omnichannel presence with diversified revenue are failing to attract consumers.
E-commerce is eating their revenue as it’s getting more convenient and sometimes cheaper to just stay home and get items delivered. The failing retailers are typically using traditional methods such as discounts and coupons to attract consumers, however, these methods are no longer working and insufficient new innovative concepts have been introduced.
A lot of retailers have been struggling for years where the current pandemic is now pushing them over the edge.
However, malls with mixed-use and strong (actively supporting retail tenants) managers will be able to continue and attract foot traffic as consumers simply have more reasons to visit and spend money.
Ongoing rise of housing prices
In most countries and popular cities, housing has become unaffordable and so unless the government steps in and organises proper public housing, most millennials will look for alternative solutions such as co-living or move to the cheaper suburbs.
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The need to combine working from home and the office
Remote work was already growing in popularity before the pandemic. Now COVID-19 causes remote workers to make up an even larger share of the workforce. However, according to most recent research people prefer a balance between home and the office.
This in itself leads to a few trends that push for mixed-use real estate:
Millennials and offices are moving to the suburbs
We’ll see a migration away from major cities to more affordable, spacious hubs like the suburbs for both offices and workers as it’s no longer necessary to live and work in the expensive central areas. Offices can have more satellite locations where colleagues get together.
The demand for shorter commutes
2020 has shown us that much time can be saved by reducing commuting time leading to increased productivity. This again together with the move to suburbs will lead to the need for satellite offices that are close to home. We now live in a world in which we want to live-work-play in one place.
More governments are supporting mixed-use development
Singapore is a great example of a country that is leading the way when it comes to mixed-use development.
This is evident from the Singapore CBD Incentive Scheme that was being announced at the Urban Redevelopment Authority (URA) Draft Master Plan 2019. This is part of the plan to rejuvenate the city centre by encouraging building owners to convert existing office developments in the Central Business District (CBD) to mixed-use developments.
It is an effort to encompass the philosophy of Live, Work and Play into the lifestyle of hustling office workers.
With regards to residential development, the Singapore government has also been clear: Future residential precincts will continue to be sustainable, green, community-centric and car-lite, with easy access to a wide range of public spaces and amenities to meet residents’ needs.
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Co-locating amenities in one-stop hubs such as the upcoming Bukit Canberra and Punggol Town Hub in Singapore makes it easier for residents to shop, dine, and engage in family-bonding activities all under one roof.
Car-lite is becoming more and more popular
Fewer people own a car. Simply because of costs, traffic or the wish to reduce footprint. The result of this is that people are looking to have more facilities in the same place in order to reduce travel time between work, home, entertainment, sports and education.
Above trends are just a few of the driving forces that will cause the real estate market to fundamentally change towards a model where the majority of the (re)developments will focus on mixed-use.
It is safe to conclude that investors should aim to get exposure to well managed mixed-use properties or companies that focus on related innovation.
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