Office with multifamily
Employment drives the relationship between the office and multifamily asset classes.
“If you need office or industrial space, you will choose a market with the best population for your industry,” Guarino said. For example, Washington, DC, is the epicenter of government and politics, while Hollywood and the film industry go hand in hand.
“When it comes to office, ultimately what matters is the people,” he said. “Therefore, the properties tend to be in the most densely populated areas where there is multifamily housing.” These areas provide office-based businesses with a larger talent pool and a broader base of clients and prospects.
Retail with multifamily and office.
Proximity to retail is key for residential and office properties.
“In densely populated areas, the commercial component with multifamily housing is important,” Guarino said. “Those services are necessary; that’s why there are grocery stores, entertainment, pharmacies and urgent care.” Proximity to personal care services – from skin care, hair and nail treatments to yoga, rock climbing and cycling – has also become increasingly important in recent years.
Likewise, office workers often run errands during their breaks. It is important to have nearby retail stores where workers can eat lunch and buy everyday items.
The exact proximity of these retailers depends on how the development is built.
Horizontal and vertical mixed-use developments
Mixed-use properties or developments are built vertically or horizontally:
- Horizontal developments: Like shopping centers, horizontal mixed-use developments include multiple single-use properties. These buildings usually fulfill complementary functions and may or may not be connected. For example, class B and C shopping centers can be transformed into a group of apartments, offices and retail stores. While horizontal mixed-use developments exist in cities, they are more common in the suburbs, where there is more space.
- Vertical buildings: In densely populated areas, space is limited. “In New York City, Seattle and other major cities, you can’t expand,” Guarino said. “You can only expand.” That’s where he’ll often find mixed-use vertical buildings, which contain different types of properties within a single structure. For example, multifamily units are typically located on the highest floors of a building, with commercial spaces, such as a coffee shop or gym, on the ground floor.
3 benefits of mixed-use properties
In addition to convenience, mixed-use properties offer commercial real estate owners and investors:
- A diverse tenant market: With multiple asset classes under one roof, mixed-use properties benefit from a broad tenant base. Depending on the property types included, tenants could include apartment residents, various retailers and office occupiers, from technology companies to healthcare providers.
- Consistent cash flow: The broad appeal of mixed-use properties can help homeowners maintain steady cash flow. Mixed-use properties also provide a cushion, as the loss of an occupant may have minimal impact on income.
- Sustainability: The density of mixed-use properties can help conserve natural resources and encourage walking, which can reduce, or even eliminate, car use. Green spaces are also often part of mixed-use developments, and many include parks and other outdoor spaces where tenants can exercise and socialize.
The future of mixed-use properties
For years, commercial real estate revolved around city centers. First, the American Industrial Revolution brought immigrants to the cities where they established neighborhoods. As the economy shifted away from factory work, those properties were torn down or used differently.
Williamsburg in Brooklyn and Long Island City in Queens are good examples. “Those neighborhoods were 100% factory,” Guarino said. “Now all is the opposite. “These are high-end retail and multifamily rental properties.”
Central business districts may also change. Instead of focusing solely on offices, they could become central social districts where residents live, work and play. Mixed-use properties are key to the development of those communities.