Mixed-Use Development In Retail Real Estate
Mixed-use developments allow developers to maximise FSI and minimise risks. How are developers making the most of them?

Examining the benefits of mixed-use developments, it is surprising that they have not been the norm until now. When jobs, housing and commercial activities are located close together, quality of life improves and the property values also increase. It is an ideal use of FSI and goes a long way in de-risking the development for developers.

Internationally, mixed-use has been more popular in the last two decades. An ideal mixed-use town centre uses drivable streets connected to the local street grid and public spaces as anchors. In many parts of the world, retail is a part and parcel of mixed-use developments. Shopping malls such as Skyplaza in Hong Kong are planned within or alongside office, hotel and residential blocks. Modern airports in India and abroad require designers to plan for extensive retail capacity and flexible spaces that appeal to shoppers in transit.

Zahir Abbas, AVP Retail, Technopak Advisors, says, “With the dynamics and pressures of the changing economic climate, businesses are constantly looking for new ways to generate revenues and enhance productivities from a land space.”

In the US, a decline in retail activity is causing conventional shopping centres to search for new purposes. Medical centres and education are making use of space in defunct malls or office parks. Vacant retail space is being converted to community services and other non-retail purposes.

Jonathan Yach, Head of Mall Management at Mantri Developers, says, “A mixed use development is not necessarily a symptom of a change in economic climate and circumstances; rather, a mixed use development is a superb way for a developer to maximise the available FSI to create as interesting and diverse real estate project as possible.”

Developers point out that the popularity of mixed-use projects is increasing. Sandeep Runwal, Director, Runwal Group says, “Today's macro-economic environment has necessitated that work and residences be close together. The infrastructure provided by the government is inadequate for the growing population and its needs. Today's cities have a chaos of traffic and snarling jams due to this. Hence, people today prefer to have minimum travel. This has led to the preference of people wanting work, play, residence and entertainment in the closest geographic circle possible. The developers have thus responded to the needs of consumers and hence mixed use land development is increasing.”

Experience points out that all of the other components namely apartments, hotel, office do better in conjunction with the retail component. Experts say that non-retail components of mixed-use developments will probably increase in the future into the range of 30 per cent to 40 per cent of the total investment.

Shubhranshu Pani, Joint Managing Director – Retail Services, Jones Lang LaSalle India, says, “The reason why mall developers are now offering space to hotels has more to do with the FSI and less with utility. It is a scenario across India, since food, entertainment and multiplexes are often not enough to utilise the complete available FSI in a mall.”

There are numerous examples of mixed-use projects coming up with savvy developers. Yach says that Lavasa is a great example of a mixed-use development on a really big scale, citing Prestige Group's Shantiniketan and Brigade Group's Orion Gateway among other projects of note. Abbas says that some projects where mixed-use is being seen include Treasure Island at Indore, Inorbit Mall at Vashi and the new Reach Mall coming up near Sohna road Gurgaon.

Runwal says that apart from large townships under development, city centric projects such as Hiranandani in Powai, Mumbai developed residences, schools and hospitals in the same geographic location. He also cites the Runwal Group's Orchard Residency with R City Mall at 1.2million sq. ft.

Abbas says more than any other country, India is uniquely suited to mixed-use. “It means that consumers don't have to travel far for most of their needs. Travellers can stay and do business and shop at the same place. It's a win-win situation for a country where infrastructure plays a major role on travel time and consumers are increasing looking for convenience,” he says.

There are many other advantages too. “Multiple elements in a mixed use development help de-risk the business. For example retail may take a hit due to any reason, but office spaces, residential or serviced apartments may continue to do well. By having a diversified mix of development, the developer can utilise to the maximum the available FSI norms. Also it de-risks the business by leveraging multiple demands. One of the other reasons for having hotels, serviced apartments etc., is the fact that retail generally doesn't work well over two to three floors,” Abbas says.

Pani points out: “Internationally, mixed use developments have been used to make the most of a location's social fabric and have done well. After all, they create a captive catchment for both retailers and the office or hotel components. The model is fairly successful in large cities, and the response for such mixed used development projects in Tier II cities has also has been encouraging.”

Internationally, it is not uncommon for municipalities to be involved in the development. Yach says, “Protagonists of mixed-use developments refer it as the natural next step in the urbanisation process, where large, privately owned land parcels are developed in sympathy with the city master development plan.”

When building a mixed-use project, it is best to follow a route. Yach terms it a “natural order”. “Generally, mixed use developers prefer to create the residential and /or commercial (office) need for the scheme before building the shopping mall. Large single tenant options establish the 'address' and the flavour of the scheme – building a hospital and an office block with large amounts of parking sets the scene for an established customer base, for say, a shopping mall. Similarly, the residential component bases the development with a ready and appreciative 'home crowd' for other mixed-uses, including schools, a mall, hospital and entertainment components,” he says.

Runwal says that marketing of projects need to be done differently. “The marketing of the projects are different – residences need a different customer type and hence a different format of marketing. The mall has a different type of customer, largely those in the retail space like a Lifestyle, Marks & Spencer's, Shoppers Stop etc. And the offices would mean a third set of audiences. Entertainment and edutainment would mean a different set of customers. Thus, while the marketing for each project is done separately, the projects team for the entire project is one, they can then work to understand the different needs and integrate them with each other,” he says.

For developers exploring the option there is much to consider. Pani ends with a word of caution: “One potential disadvantage to retailers pertains to the planning and layout of a mixed-use mall – if the customer flow is not properly designed and enough parking spaces are not available, mixed use developments can result in a bad experience for shoppers.”