Mixed-Use Development Comes of Age

SAN DIEGO-What's new to say in multifamily? We know that capital continues to flood the market, investor activity remains elevated, and multifamily development is now resurfacing throughout the nation. The news, however, lies in what's next. 

In the current market cycle, the emerging trend in urban infill multifamily development is a growing acceptance of mixed-use development, specifically when it comes to retail.

In the past, retail components in mixed-use, multifamily projects were typically built only when required by zoning requirements. Developers didn't perceive a strong market for the retail space in these projects, and relied heavily on residential components to subsidize the retail development.

Today, however, ground-floor retail is holding its own in many neighborhoods, and commanding sufficient rents to justify the development of that space.

This shift stems from a larger trend in the development community, as suburban sprawl reaches its natural end, and developers shift their focus to urban infill projects.

These new, urban infill projects are contributing to the revitalization of older metro neighborhoods and beach communities here in Southern California. In turn, the higher residential densities are fueling the increasing demand for retail establishments in these neighborhoods.

From the retail tenant standpoint, consumer demand is climbing in these newly revitalized neighborhoods.  Spending patterns have shifted, and many apartment residents now prefer to spend dollars closer to home, resulting in increased opportunity for retailers who lease ground floor space in mixed-use multifamily projects.

For example, Voit recently completed the brokerage of a 29,700-square-foot development site encompassing five contiguous properties at the intersection of 30^th and Upas Streets, two miles north of Downtown San Diego. Voit represented both the seller and the buyer, Jonathan Segal FAIA & Development Co., which is now constructing a mixed-use multifamily project at the site.

The planned project, North Parker Lofts, will consist of 27 two-bedroom units, as well as 3,000 square feet of office space and nearly 6,000 square feet of retail space, made up of four separate suites. 

Demand for the retail suites was evident from the moment the project was revealed. Three of the four planned retail suites were pre-leased before the project's groundbreaking.

In the past, many investors were hesitant to acquire mixed-use multifamily product, because it requires expertise in two separate skill sets: multifamily and retail. As demand increases for the retail space, there has been a growing recognition of the viability of this investment type. We now see more investment groups willing to accept the more complex task of analyzing, acquiring, and operating properties that combine residential and retail components.

The progression of this trend will partially depend on employment. Employment gains remain crucial to sustaining the momentum in the multifamily market. As the primary driver of apartment rents, employment gains bode well for the overall apartment market and, in turn, will drive the growth of mixed-use multifamily development.

Robert Vallera is a SVP in Voit Real Estate Services' San Diego office. Contact him at rvallera@voitco.com. The views expressed in this column are the author's own.