Mixed-Use: The New Real Estate Development Buzzword
According to the World Health Organization, cities will hold 70 percent of the world’s population by 2050. About 96 percent of this growth will occur in developing countries, demanding quality urban spaces and services, and offering an extraordinary development opportunity for the global real estate industry. Does the mixed-use concept hold the key for fast growing and increasingly congested African cities? When we talk about ‘mixed-use’ in an East African context, we are typically looking at an integrated real estate project that includes elements of retail, residential and commercial offices, along with green spaces for recreational activities. Garden City was the first such development in Kenya, located along the Thika Superhighway and anchored around a large destination Mall, alongside residential apartments and townhouses, all designed around a 3-acre central park. The pioneering 47-acre project has been financed by leading growth markets investor, Actis and designed to be delivered in several phases. Garden City Business Park followed the establishment of both the mall and residential elements in phase one, with the first office building now completed and already 60% leased. Finally, to complete the mixture of uses, there are more offices planned, along with 600 mid-market apartments, plus a hospital and hotel, all scheduled for completion over the next three years. Though still relatively new to the Kenyan real estate market, urban mixed-use living is not a new idea. If we look at urban development globally, throughout human history the majority of human settlements first developed as ‘mixed-use’ environments, but were then split into single use zones as cities grew and, industrialization, commercial centers and residential areas were built by real estate developers as ‘islands’ served by the shops and amenities that followed them. Post industrialization in the USA, Canada, Europe and Australia, urban centers grew out from a central core and with the reliance on cars as a primary form of transport brought traffic congestion. It became apparent to many urban planners and real estate developers throughout the late 20th century that establishing mixed-use developments as new ‘city nodes’ had many benefits. The availability and general rise in land prices in central areas also affected the increasing need for developing a blend of uses between commercial and residential. In Nairobi, everything has been built in just over 100 years so as a capital city, it has experienced exceptional growth. As Nairobi grew from the commercial centre, industry was separated out and the suburbs became dedicated to housing. Also, as traffic and centrally located land prices increased, decentralization has inevitably occurred, which has changed the urban landscape dramatically and the way people move around the city. It is perhaps not surprising that mixed-use developments are now gaining popularity in car-dependent commuter cities because they offer an appealing alternative for the modern city dweller, with more convenient family living and a better quality of life. Research has shown that demand for commercial property and residences within a mixed-use project are high because people recognize the benefits of integrated amenities and facilities. Investing in a mixed-use scheme is becoming increasingly popular, but a word of warning to would-be developers, because large mixed-use developments are not for the feint hearted. While spreading your risk across several asset classes, mixed use projects need considerable investment from the beginning and property developers new to the concept need to quickly become experts in all the asset classes they are promoting. Attention to best practice design, common shared services, phasing, legal structuring to afford single or asset by asset disposal and how to successfully manage and operate a mixed-use asset are some of the issues to be considered. In Kenya, it is considered more challenging to get project finance for mixed-use schemes from local banks as they prefer a simpler single asset development. If you have three different uses on a project, all three need to work well together and meet the overall business plan. If one struggles, this puts significant strain across the project. Retail is very much favoured as the prime asset class to integrate into a mixed-use project, becoming the heart of the project. In order to stabilize, this needs to have a strong customer base promoting retail spend within a large catchment area, and not just from within your development. The retail sector has changed dramatically over the last 10 years driven by customer demands and new technologies. In Nairobi the retail market has seen a dramatic increase in the number of malls, which presents further constraints when evaluating the viability of a large retail led mixed use development. Mixed use is here to stay because it is a tried and tested model, can promote best use / highest value options on well located land and has a growing appeal to the modern urban consumer so more developments will undoubtedly follow, not just in Nairobi but across Africa as a whole.
By Chris Coulson
MD Garden City