Why is Nobody Building Mixed Use in a Mixed Use Zoning District?

Question

Any theories?

I've been looking at building projects within Mixed Use zoning districts in my town. Surprisingly, it seems to me that nobody is taking the city up on Mixed Use zoning incentives. Developers are instead only building residential (either townhomes or apartments). By building mixed use, you get better FAR, smaller setbacks, and more height, so what am I missing? I would think it would be a no brainer.

I've thought of a couple reasons, but I thought I would see if anyone had some input first to see if our ideas sink up. Thoughts?

Joshua Baker · Answer

@Robert C. Developers, at least the ones I work with, are becoming less interested in Mixed use (read commercial/retail) because it’s becoming difficult to get solid leases. I recently consulted on the construction of 250k sqft of office/retail that has been fully permitted for 7 months now with no outlook of being built due to leasing difficulty. SFR and MFR are killing it currently and pose much less headache when it comes to getting them to cash flow or pay out. Hope this helps!

Robert C. · Answer

@Joshua Baker, Definitely you make a good point about retail being harder to lease these days, and I can see how building 250k of office/retail would be a big gamble. But if the project size is like 50-100 residential units on top of maybe 10k of commercial, I'm wondering why that wouldn't be cost efficient. Or why not add some nominal commercial space just to get the zoning benefits? But maybe what you are saying is just the facts, and wishing it so won't make it better! I think what's challenging in my area is that the apartments are definitely getting harder to pencil, so I'm trying to figure out if it's possible to pursue a successful mixed use project.

@Greg Dickerson, So my downtown has built a ton of luxury housing during this cycle, and it surprises me that even those locations (downtown and near transportation with lots of pedestrian traffic) still skip the ground floor retail component.

Thanks for both your responses. Do either of you foresee a light at the end of the tunnel for commercial development to pick up again?

Greg Dickerson · Answer

@Robert C. it all depends on highest and best use based on demand and individual exit strategy. Multifamily is hot right now and townhouses are very profitable in the right areas.

I like mixed use especially in areas where lots of housing units are coming on line. They will need coffee shops, restaurants and bars/breweries. That being said if the demand is not there then give the market what it wants.

Nik Moushon · Answer

The biggest problem is commercial is just not in demand as much as housing. On top of that commercial spaces really are not that hard to come by in most places. Mix-use zones can really vary from city to city and most actually are not in the best locations to attract both residential and commercial tenants, at least when it comes to new development. The best mix-use zones are usually located in the old town towns of cities, so they are already developed. So if your targeting remodels as development then you have better chances as the commercial aspect is already established and, in most cases, adding residential and the draw for ppl to live there is a much easier sell then if the situation was reversed. Finding that prime mix-use location that is at the bleeding edge of where the residential and commercial meet and is a desired location for BOTH is getting harder and harder. The way city zoning laws are changed and are changing usually ends up making this harder than easier. Mostly because politicians have good intentions but dont have the first clue about what actually works.

Joshua Baker · Answer

@Robert C.

I believe that a commercial component can do well today, but it has to be just right. With the massive quantity of multi family and SFR housing being built, there will definitely come a time when people want more bars, coffee shops, breweries, etc. The retailpocalypse will end soon enough once the shift to online ordering stabilizes, once that occurs there will be tons of retail to redevelop or buildout.

Why is Nobody Building Mixed Use in a Mixed Use Zoning District?

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