COLLIERS
RADAR
MIXED USE DEVELOPMENTS
A balancing act
Daniel Lees
Director | Research
[email protected]
Sass J-Baleh
Manager | Research
[email protected]
Summary
Mixed use developments play an integral role in satisfying
Australia’s need for residential housing supply. However achieving
the right balance between commercial and residential use is not
easy. In this edition of Colliers Radar, we examine:
•
Why mixed use developments are becoming increasingly
important
•
The impact they have on the commercial property sector
•
What features make such developments successful
Why mixed use?
One of the most important topics addressed within Australia’s
various state planning frameworks is the need for housing, with
these planning frameworks becoming increasingly detailed. “A
Plan for Growing Sydney” released in December 2014, outlines
the importance of increasing housing supply, growing communities
and improving infrastructure, however the upcoming amendment
titled “Towards Our Greater Sydney 2056” by the Greater Sydney
Commission scheduled for release at the end of 2017 will outline
specific housing targets over the longer term. The draft version
of this document outlines that projections for Sydney’s dwelling
growth have been revised upwards by 9% since 2014, with the
middle growth scenario indicating that an additional 725,000
dwellings will be required between 2016 and 2036. Under a high
growth scenario an additional 830,000 dwellings will be required
over the same period.
However it is not just housing in isolation that must be addressed.
The introduction of new housing supply must be balanced delicately
in conjunction with zoning, urban regeneration projects, transport
infrastructure developments, and perhaps most importantly job
creation and economic prosperity. The Sydney Metropolitan Area
accommodates over 2.4 million workers, however according to
state planning documents, a major priority will be to support the
generation of over 817,000 additional jobs by 2036.
Delivering this plan for Sydney, which effectively aims to increase
residential dwelling numbers, increase job numbers and also
reduce commute time will rely overwhelmingly on effective
mixed use development. How else will cities like Sydney increase
housing supply while simultaneously guaranteeing no net loss of
employment on existing employment generating precincts? Put
simply, the vanilla strategy of converting traditional commercial
centres to residential developments cannot proceed unchecked.
Delivering this plan for Sydney,
which effectively aims to increase
residential dwelling numbers, increase
job numbers and also reduce commute
time will rely overwhelmingly on effective
mixed use development.
When evaluating the future redevelopment of existing
employment sites into mixed use schemes, the following criteria
must be satisfied:
•
Achieving the highest and best value use for the site
•
Maintaining employment functions on the site
•
Sustaining a resident population that can generate and
retain expenditure within the local area
•
Provide opportunities for people to live and work within the
local area, thereby enhancing employment retention
•
Making use of social and transport infrastructure in the
immediate vicinity of the site (e.g. train stations, schools,
and recreational parks).
Colliers Radar | Mixed Use Developments | April 2017
The impact of mixed use on
commercial real estate
Market Hall (Rotterdam, The Netherlands)
The term “mixed use” implies some form of balancing act.
Residential developers will naturally try to maximise their residential
density levels in order to increase dwelling yields and maximise
returns on development. However left unchecked, this will be
detrimental to employment which, as discussed, will not align to the
greater plan for Sydney. Therefore in order to have large residential
projects approved, developers will need to demonstrate their ability
to balance this residential supply with appropriate allocations of
commercial space, whether it be retail, office or light industrial.
Given the ambitious residential and employment targets outlined
by the Greater Sydney Commission, it is reasonable to assume that
the number of mixed use projects in the development pipeline will
only increase in the future. Currently, one of Sydney’s major mixed
use project under urban redevelopment is the Green Square Town
Centre development (278 hectares) – set to deliver around 30,500
dwellings with commercial and retail space creating around 22,000
jobs by 2030. The site previously accommodated Daimler Chrysler
and historically was a significant industrial area. The urban renewal
of Green Square has already acted as a catalyst for the identification
of two ‘investigation areas’ (i.e. council will consider planning
rezoning proposals) to support the wider objectives of the area.
•
A global example of a successful mixed use development.
•
100,000sqm, 228 apartments, 100 fresh market produce stalls,
food related retail units, food preparation and cooling space,
supermarket, 1,200 parking spaces.
•
The hall is formed from an arch of privately developed apartments,
allowing private investment in an initiative to provide a public
space.
The retail sector
The retail sector plays a particularly important role within mixed
use developments. Firstly, retail provides essential amenity
for residential developments in the form of shopping centres,
convenience based retail and vital medical related services.
Secondly it maintains quite a high level of employment density
(averaging 20 sqm per job). It is also worth noting that while the
residential sector has impacted the retail sector, the opposite also
applies. The quality of retail amenity on offer within a larger scale
mixed use development will dramatically influence its level of appeal
to consumers and residents alike.
The introduction of retail space can be particularly effective
throughout urban renewal projects. In these scenarios, the precinct
is benefitting not only from an improvement in amenity, it is also
improving the aesthetics, ambience and functionality for residents
and visitors alike. Market Hall in Rotterdam is perhaps one of the
most striking global examples of retail being applied in such a
manner, combining fresh food markets with residential apartments
in Laurens Quarter, the original pre-war centre of Rotterdam.
The industrial sector
There have been many instances of urban regenerated sites
through mixed use development that were previously zoned for
industrial use, such as Wolli Creek, Rhodes/Wentworth Point and
more recently Green Square. Industrial occupiers typically yield
a low employment density, averaging between 100 sqm and 150
sqm per job. As such, changing whilst simultaneously reducing
the employment generating industrial area to commercial, retail,
or health related uses will subsequently increase the overall
employment density of the site. This is because commercial/retail/
health uses typically yield a higher employment density, averaging
between 10 sqm to 25 sqm per job. However this change of use
may be at the expense of local industrial users who will be forced
to relocate to sub-optimal areas that do not cater to their existing
local population or consumer base. This is particularly true for
businesses that tend to serve a highly localised market, such as
bulky goods retail, car showrooms, automotive repair and services,
and self-storage.
Colliers Radar | Mixed Use Developments | April 2017
What are the pitfalls and
risks associated with mixed
use development?
What is the right strategy?
One of biggest risks encountered in mixed use developments is
creating a sectoral imbalance between residential and commercial
applications. In our view, common pitfalls include the following;
Engage with retailers early
Retail as an afterthought
Unfortunately, the retail component of a mixed use development
is often considered an afterthought. This situation occurs when
the planning and construction is carried out by parties from the
residential sector alone, with little consideration made for the end
retail user. Utilisation of floorplates may be very challenging for
retail tenants due to the impractical positioning of structural features
such as pylons and walls. The delivery and access of utilities such
as electricity, gas, water and waste outlets may also create fitout issues for users, unless that tenancy was built to specification
which is not always possible. The success of the final retail tenant
will also be determined by the level of access to the site, which
may involve adequate parking facilities. As residential developers
will naturally want to increase the overall allocation to residential
apartments to increase dwelling yields, parking can quickly become
a low priority.
Special needs of supermarkets
If the retail component is intended to house a fully operational
supermarket, then ignoring these fundamental requirements
can become even more problematic. Accommodating a major
supermarket will mean less flexibility in floor plate design, with the
majors having quite strict requirements in terms of space allocations
to the various product categories (fresh, bakery, deli, frozen etc).
Supermarket development must also incorporate appropriate levels
of truck access and take into consideration the timing of delivery
schedules. There will be an inherent requirement within a mixed
use development to minimise the disturbance of residents from
both noise levels and traffic congestion.
Incorrect adjacencies
Creating new retail amenity without first taking into consideration
the existing services is also problematic and will only set up those
new retail occupants for failure. An extensive level of planning
goes into the floorplan and design of shopping centres and this
level of strategic thinking should to be applied within mixed use
developments. Anchor tenants need to be augmented with
speciality tenants and convenience based service offerings. This
will depend heavily on the final resident population density, existing
retail service provision and any potential uplift in final retail demand
once the development reaches completion or maturity.
In many cases, implementing the correct mixed use strategy will
involve addressing these issues raised.
Retail should no longer be thought of as being secondary to the
residential component of mixed use developments, and instead
the overall concept design should be created with all users in
mind. In this vein, the requirements of retailers both large and
small need to be considered, covering areas such as; floor plate
size and layout, utility delivery, access to parking or transport
and retailer location. Essentially mixed use developments
must create a symbiotic relationship between residential and
commercial sectors so the whole is greater than the sum of
its parts. This cannot occur unless appropriate planning has
occurred for all parties.
Mixed use developments must
create a symbiotic relationship between
residential and commercial sectors so
the whole is greater than the sum of
its parts.
Identifying gaps in the current offering
The type of retail offering delivered within mixed use developments
will depend largely on what is already available. Creating a new
full line supermarket can be compelling within a new development
due to the significant uplift in retail amenity not to mention
the associated employment uplift benefits, however if there is
already such an offering in the immediate catchment then such
a proposal is inherently risky. There is also the possibility that
initial demand within a precinct will not be sufficient enough for
the retail component to breakeven until that precinct reaches
maturity. Rather than approaching these developments in a cookie
cutter manner, each precinct needs to be evaluated individually,
and the retail amenity needs to be enhanced by clustering different
offerings strategically. Retail can no longer be thought of as simply
a transaction, and retail landlords are acutely aware that in order to
survive they must excel at place making and creating experiences.
At a time where disruption in the retail sector is heightening,
mixed use developments allow these landlords and the retailers
within them to truly become engrained within community’s social
infrastructure.
Be aware of the planning process
Achieving the right balance within a mixed use development will
also be influenced by the planning process. There have been
instances in the planning application stage where regulations have
Colliers Radar | Mixed Use Developments | April 2017
imposed limits or caps on the amount of floor space allocated to
retail or other commercial uses, and this has been a result of what
services already existed in the surrounding catchment. Providing
clarity on exactly what scenarios these restrictions would occur
under is difficult, as the reasonable assumption would be that an
increase in the residential population would support any additional
amenity. Nevertheless developers must be aware that there can be
no conflict between the development proposal and State Planning’s
identification of ‘Strategic Centres’. The NSW planning framework
outlines the priorities for each District including key Regional and
Strategic Centres that are recognised for their renewal opportunities
around existing or proposed infrastructure, and which therefore
offer opportunities for increased residential density close to jobs.
The Plan outlines that a priority for the New South Wales Department
of Planning and Environment is to work with Council to retain core
employment sectors (commercial / retail / health / education) in
various Strategic Centres to support long term employment growth.
Therefore new mixed use developments must be planned in such a
way that they do not conflict with these objectives, i.e. by drawing
employment away from identified Strategic Centres.
•
Development scheme: 2,016 residential dwellings, Coles
Supermarket, Virgin Active Health Club, 50 specialty shops,
and a 10,000 sqm Audi Service Centre (includes car sales, hire,
showroom, service, and a coffee and food workstation). The Service
Centre is one of the largest Audi service and parts facilities in the
world, offering 48 service bays
•
The development is located adjacent to a car dealership area, and
therefore the Audi Service Centre complements the neighbouring
showroom.
There’s more than just retail
Mixed use developments generally conjure the idea of a combination
of retail and commercial employment generating uses with
residential developments. However these are not the only sectors
that can be incorporated into a mixed use scheme. While it is no
secret that a significant amount of Sydney’s commercial industrial
stock has been withdrawn or rezoned for the purpose of residential
conversion, there are some instances where industrial stock has
been preserved within mixed use developments. This has been a
practical solution in areas where the industrial use was light in
nature and weighted towards white collar employment, therefore
entailing a higher employment density (60 sqm to 100 sqm per
job). In these instances, the incorporation of light industrial has
supported the local workforce while also increasing the level of
service based amenity within the area. Some examples where light
industrial uses have been successfully co-located with residential
developments include the following:
The Hawksburn (South Yarra, Melbourne)
East Village (Zetland, Sydney)
•
A five storey mixed use development (completed in 2014)
incorporating residential uses (135 dwellings) and a Volvo car
showroom with café
Colliers Radar | Mixed Use Developments | April 2017
Eureka Tower (Southbank, Melbourne)
•
When completed in 2006, the Tower was the tallest residential
building in the world
•
A 91 storey mixed use development consisting of 556 residential
dwellings and an 890 sqm Aston Martin and Rolls Royce car
showroom at base/street level
Mercedes House (Manhattan, New York)
•
The development (completed in 2009) comprises of a five storey
Mercedes Benz dealership at the base, and a 27 storey luxury rental
apartments (864 residential dwellings)
The above examples demonstrate that locational advantaged sites/
precincts that previously served only one functional role have the
scope and capacity to redevelop, modernise, and co-locate light
industrial local businesses (particularly within the automotive
sector) with a broader mixed use scheme.
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contained in this report. If you intend to rely upon the information contained herein, you must
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