Have you noticed how the commercial real estate market has been trending towards mixed-use developments recently? One of the most noticeable movements in the residential market has been the increase in demand for residences in high density areas. Millennials in particular have been known to want their residences to be in or around their place of work to avoid the long commutes. Residences in mixed-use developments are also in high demand because they provide the comfort and security that comes with being in a populated area, with the added convenience of living near retail stores. This increasing demand for large scale mixed-use developments are directly increasing the amount of applications for rezoning that require Development of Regional Impact (DRI) applications to be submitted.
DRIs are triggered by a rezoning application for any project that includes more than 400,000 Sq. Ft. of office, 300,000 Sq. Ft. of retail, and residential developments of more than 400 units such as Single Family, Multi-Family, Townhomes, or Condos. Many proposed mixed-use developments fit these requirements and DRIs have become more relevant in today’s commercial real estate market than ever before.
Mixed-use developments are desirable from the developer’s perspective for a number of reasons. First, the sale of apartment pads within the confines of the mixed-use development yield above market values vs. free-standing apartment land sales. Rental rates in multi-family units within the confines of a mixed-use development are higher than free-standing apartment complexes and absorption rates, generally speaking, are 150% greater. Second, due to the high density residential component of a mixed-use development, the accompanying retail space has a built-in, demographically desirable clientele for retail benefit. Having thousands of tenants within walking distance of the retail space helps drive demand for the retail space up, as well as rental rates. Lastly, office space in these types of developments tends to benefit in the same respect as retail space due to on site residential components.
Given all of the benefits derived from mixed-use projects, it comes as no surprise that the real estate market has shifted accordingly.