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Mixed-use developments offer investors promising opportunities

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Property industry must offer people what they want

Mixed-use developments are mushrooming in cities throughout the world as people look to cut down on commutes and have a range of amenities within walking distance.

South Africa is no different, with these global trends spilling over into the local real estate market. As more people desire central living, with a range of amenities and minimal travel time, property companies must meet demand with modern spaces offering a range of benefits, says Nicholas Stopforth, managing director of Amdec Property Developments.

“This is where mixed-use developments come in, offering the ability to ‘live, work and play’ in a safe and secure precinct. These developments are springing up in major cities worldwide, creating a new way of living and benefiting inner cities in a number of ways.”

South Africa is already home to a number of prominent mixed-use developments and precincts such as Century City in Cape Town and Melrose Arch in Joburg, but more are being developed – and rapidly.

In April, the City of Joburg released a prospectus of 97 properties for mixed-use development, with a total value of R20 billion to R25bn. They were released across several areas, including Randburg, Orange Grove, Houghton, and Wynberg. Mixed-use developments in Cape Town include Harbour Arch and The Yacht Club, while Durban is home to prominent mixed-use precincts such as Umhlanga New Town Centre, Umhlanga Ridge Town Centre, Beacon Rock and Sibaya.

Mixed-use property investors should add amenities that make life easier for residential tenants. Picture: Supplied

But while developers are working furiously to meet the demand for mixed-use living, they are also offering investors promising opportunities. One is the diversification that investors need to balance their portfolios and garner a little downside protection, says a new report from Assets America.

“Mixed-use property incorporates an assortment of tenants and uses. This helps mixed-use property investors guard against large vacancies versus those at single-use properties. Additionally, because of the multiple uses, owners can roll tenants and boost rents, thereby strengthening net operating income.” 

Studies indicate owners can charge higher rentals on the commercial components of a mixed-use property compared to single-use properties. To get the most value out of mixed-use developments Assets America says investors can: 

• Pick commercial tenants from complementary industries to add value to single mixed-use property. For example, if you lease to a mortgage broker, estate agent and insurance agent, they will be able to pass referrals between each other.

• Set the residential price points to mesh with the types of commercial tenants you favour. For example, if you like high-end retail stores and classy restaurants, making the residential portion of the property upmarket will entice the kind of commercial tenants you want.

• Add amenities that make life easier for your residential tenants such as playgrounds, a health club and community spaces. This means you can’t go wrong with retail tenants which include a grocery store, coffee shop and dry cleaner.

• Encourage community events to occur at your property such as art events and small business seminars. This will help foster a sense of community, which creates loyalty and higher rents.

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