Mixed-Use Properties May Help Solve Retail and Office Challenges

While industrial and multifamily sectors quickly soared after the onset of the pandemic, not all did. Office was hurt and is still limping. Certain types of retail held its own, like those anchored by a grocery store; many didn’t.

But reports about the two different sectors come to the same conclusion: mixed-use may be a way for retail and office to help one another.

The two categories can have significant interaction. Reduce the presence of one and the other can suffer as well. “Before the pandemic, retail within urban office areas served as an easily accessible amenity to office employees—perfect for running errands and grabbing lunch with coworkers or a client—however, with physical office occupancy still well below the pre-pandemic baseline, urban retail locations continue to miss out on an important revenue stream,” Peter Ferramosca, a consultant with CoStar Group, said in prepared remarks. “Our research has found that ongoing mixed-use development trends that create a ‘live-work-play’ environment could limit the negative effect of lower office usage on nearby retail and has the potential to offer outsized returns for investors.”

The firm says that its data suggests that “office nodes with relatively high densities of multifamily units” can pay for retailers because people who are already there spend on necessities during the week and boost sales on weekends.

Similarly, CommercialEdge’s May 2022 national office report explained, “One aspect of office markets we expect to persist is the proliferation of office space in mixed-use developments.” The firm noted that some justifiably thought the pandemic would kill off mixed-use projects.

“Now, emerging trends suggest that mixed-use development can meet the post-pandemic demands of developers, owners, tenants and workers,” CommercialEdge writes. “For owners and developers, mixed-use can offer protection from office’s uncertain future by diversifying across asset classes. Many companies that adopt a hybrid work strategy will look for ways to draw their employees into offices without forcing them to do so in a tight labor market. One way to achieve this will be to locate in a building that provides a wide array of amenities, including options for retail and dining.”

CommercialEdge notes that there are two distinct classes of mixed-use that are successful in different environments. High rises in central business districts and downtown areas provide multiple uses in one structure. For less dense cities and suburbs, horizontal development is more popular.

The questions that arise is the density of such developments that an area could support and how changes in office use, including more hybrid implementations, would affect the results.