Diversification of mixed-use properties decreases risk by achieving market spread
Growing in popularity amongst investors are mixed-use commercial properties, which provide the necessary space for diversifying prospective tenants and property types. Traditionally split between ground-level retail and upper-level residential and/or office spaces, this type of investment can enable an array of advantages.
Perhaps the largest drawcard for mixed-use commercial properties lies in the mitigation of risk, as the split of success is distributed across two or more variables. What this means is that, if one business or property is either underperforming or vacant, the other can compensate by providing another income stream.
Further contributing to the benefits includes leveraging different tenant markets, as at any given time one domain can be stronger than the other, which depends on what the market requires at the particular time. Distributing the investor’s reliance across multiple avenues, instead of being tied to just one, can further add to the reduction of risk.
The question becomes, what mixed-use commercial properties work best? The answer to this spans a couple of points.
Firstly, location plays a big role in identifying the appropriate split. As mentioned, the upper-level residential combined with lower-level retail is a tried-and-true formula that typically yields success. However, to maximise these yields, the property would ideally be located inside a community where the need for accommodation, combined with the possibility of a cafe or retail space on the lower level, is a viable business option.
Given that residential generally has a much lower vacancy rate, the consensus amongst experts is to primarily target residential occupants, with the commercial element considered secondary due to the higher vacancy rates for longer periods.
Secondly, understanding what your borrowing capacity is will be crucial, as this can vary greatly from that seen when related specifically to residential. An increased amount of capital is usually required to commence the project, along with a detailed understanding of the zoning guidelines of the area.
Mixed-use commercial properties provide a host of benefits to potential investors, and if researched correctly, can drastically decrease the risk thanks to the diversification of both markets and tenants.
By not placing all eggs in one basket, this investment strategy covers the variables that notoriously arise in the market, allowing for consistency despite the potential volatility.