Variables in Developing Profitable Mixed-Use Properties

Abstract

Cities and other local authorities have been advocating mixed-use development in ac-tively their communities. During recent years, the trend has hit the Nordics as well. However, there is still much confusion as to what mixed-use development is, why it is being advocated and how to develop mixed-use properties profitably. This study aimed to identify the motives behind mixed-use development within the Helsinki Metropoli-tan Area property investment market. This study also aimed to identify the variables, which affect the profitability of mixed-use development and single out those variables which are most urgent within the market. The nature of the research was constructive. A literary review was conducted to identify the motives behind mixed-use develop-ment and to identify the different schemes available. The motives of the local authori-ties were found to be three-fold. Firstly, mixed-use development creates social sus-tainability by creating safer and more communal working and living spaces. Secondly, mixed-use development creates environmental sustainability by enabling pedestrian friendliness, density and functioning public transit systems. Thirdly, mixed-use devel-opment creates economic sustainability by decreasing inequality between neighbor-hoods and supporting local businesses. From a financial point of view, mixed-use is less popular than single-use development, because the real estate market is strongly segmented and funding a mixed-use project is considered more expensive. However, there might be benefits in risk diversification when compared to single-use develop-ment. A series of thematic interviews was conducted to verify the different variables that affect the profitability of a mixed-use scheme. The variables were categorized into three dimensions: physical, functional and financial. These dimensions are applicable in all real estate projects, but the identified variables are mixed-use specific. A survey was conducted to identify which variables are most relevant to the investors in the market. The conclusion of the study was to advise development companies to focus on the benefits mixed-use development has more than the physical mixing of functions. However, if mixing functions into the same building is the most beneficial solution for the project, development companies need not be anxious of mixed-use development, because investors seem to be as interested in mixed-use properties as they are in single-use properties.