Mixed-Use Developments: The Future of Commercial Real Estate Investment

The commercial real estate sector in India is on the path of radical change, the cornerstone of which is mixed-use development which will dominate future urban development and investments. These hybrid environments incorporate space for retail, offices, housing and recreation, thus changing people's lifestyles, relations and work in the cities. The idea has been well received by both investors and developers owing to the transformation in target colonies and the increasing rate of urbanization.

As mentioned by Ashish Agarwal - Co-Founder, Enzyme Office Spaces, "These projects can be termed as the next stage in the development of cities as the boundaries of places of work, residence, and entertainment are becoming fuzzy. These types of projects are now estimated to capture over 30 per cent of all direct foreign commercial real estate investment in Indian towns by the year 2025." This change is an outcome of a more advanced conception of the working of the city as well as the necessity for a more holistic living solution.

Such ventures are attractive because they are able to build sustainable systems with multiple revenue sources. Most of these projects involve Grade A offices, upscale retail locations, luxury housing, leisure buildings, recreation, and private or public schools. The range of products offered enhances foot traffic and also fosters complementary relationships between the various components. "Mixed-use projects tend to inherently mitigate the risks of downturns in certain sectors," says Aman Gupta, Director of RPS Group. "When one component is struggling, it's common for other elements to pick up the slack and bring overall returns to a stable place."

The issue of location strategy is important in such undertakings as there are mixed-use projects. Projects that are in the vicinity of public transport stations and expanding residential and employment areas have performed much better than other types. "India's real estate markets have the most prospects, amongst the emerging economies," states LC Mittal, Director, Motia Builders Group. "Any mixed-use development that is planned in our country should constitute the new infrastructure development and the demographic evolution. The worth of the goods increases drastically because of their proximity to transit points and expanding areas of commerce." Such geographic placement is important in ensuring constant demand for all the parts of the development.

Integration of technologies and of sustainable practices has been perhaps the most important focus of the recent mixed-used practices. Smart building control systems, advanced architectural planning, as well as adequate waste management, are, in much the same way, standards and not luxuries anymore. "Sustainability, however, should not be given as a choice; I consider it to be a necessity for the sustained growth and profitability of any mixed-use development," said Anurag Goel, the Director of Goel Ganga Developments. Aside from that, these features not only help in cutting back on operation expenses but also draw optimal types of tenants and purchasers who are willing to pay more for being environmentally friendly.

The metrics of the investment returns for the mixed-use developments appear to be very favourable and indeed appeal to institutional investors. "Despite higher initial outlays that are normally expected, the return IRR for mixed-use development usually is 18-20% or more in the years where the scheme is properly conceived and implemented," said Shiv Garg, Director, Forteasia Realty Pvt. Ltd. The better return is a reflection of the difficulty in executing and running these types of projects as well as their multi-model development and value creation.

For mixed-use developments to succeed, the three aspects that must be present are, to begin with, the preparation, the selection of the location and last but not the least - the execution. For investors looking to tap into the real estate upsurge in India's cities, such ventures provide a scope for a balanced risk-return equation, aided by sound fundamentals and changing dynamics of the market. Making sustainable, neighbourhood-focused environments that generate compelling returns is what appeals to both institutional investors and developers involved in the first place.

As the urban area gets bigger and the way in which propositions are perceived changes, mixed-use developments are likely to become the most dominant commercial real estate firm in India's metropolitan areas. Their capacity to respond to market requirements and offer a consistent margin for the future makes them an efficient investment choice for the time to come. Various asset classes in a single development not only integrate different resources efficiently but also build strong communities with a great sense of purpose.