J.P. Morgan Chase: Combining Buildings Isn't New, but Popularity is Rising  

FOR IMMEDIATE RELEASE

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[Phoenix, AZ] – [September 17, 2024] – Combining two or more asset classes into one building isn’t new. But it has grown more popular in recent years and could play a pivotal role in commercial real estate’s future according to JP Morgan Chase.

 

As consumer preferences shift toward convenience, mixed-use developments are rapidly gaining popularity in the real estate market. Combining residential, retail, and office spaces into a single location, these properties meet the demand for integrated, accessible environments where people can live, work, and shop without long commutes.

 

“People want easy access to the things that make their day-to-day lives simpler,” said Judy Guarino, Managing Director of Commercial Mortgage Lending at JPMorgan Chase. “Whether it’s grabbing coffee, working out, or visiting a clinic, mixed-use properties deliver that level of convenience.”

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Mixed-use developments are transforming how people experience urban spaces, offering a vibrant blend of functionality and community in one development.

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The Growth of Mixed-Use Developments

Mixed-use properties have seen increased interest as consumers seek live-work-play environments. Popular forms of mixed-use developments include retail districts, live-work spaces, and mixed-use hotels. These projects are designed to create bustling, connected communities where all essential services are within walking distance.

Investors, however, should understand how these asset classes—residential, office, and retail—interact to enhance property value.

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Office and Multifamily Synergy

A successful combination of office and residential properties is driven by employment and population density. “When businesses are looking for office or industrial space, they choose markets with a strong labor force,” Guarino said. Cities like Washington, D.C., attract government workers, while Los Angeles draws talent from the entertainment industry. In July 2024 (2 months ago), Arizona's labor force participation rate was 62.3%, which was a 10-year high. This is the percentage of Arizona's civilian noninstitutionalized population over the age of 16 who are either employed or actively looking for work.

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Office buildings located near multifamily housing provide companies with access to a larger talent pool and customer base, making mixed-use developments attractive to businesses and residents alike.

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Retail, Office, and Multifamily Integration

Proximity to retail services is crucial for both residential and office tenants. “In densely populated areas, the retail component is essential,” said Guarino. “Grocery stores, pharmacies, and fitness centers need to be close by to serve the community’s needs.”

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Office workers benefit from nearby retail as well, making it easier to run errands or grab lunch during breaks. The design of these mixed-use spaces—whether horizontal or vertical—determines how these services are accessed.

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Horizontal vs. Vertical Mixed-Use Developments

Mixed-use properties typically follow one of two designs:

• Horizontal Developments: Spread out across multiple single-use buildings, horizontal mixed-use properties are common in suburban areas where space is more plentiful. This design allows for complementary services in separate but adjacent buildings, such as a complex with offices, retail stores, and apartments.

• Vertical Developments: In urban centers where space is limited, vertical mixed-use buildings are more common. “In cities like New York or Seattle, there’s no room to expand out, so you have to build up,” Guarino explained. Vertical buildings often feature multifamily units on upper floors, with retail or office spaces on the ground floor.

 

Key Benefits of Mixed-Use Properties

In addition to convenience, mixed-use properties offer several advantages for investors:

• Diverse Tenant Base: With multiple asset classes under one roof, mixed-use developments attract a broad range of tenants, from apartment residents to retailers and office occupants.

• Steady Cash Flow: The variety of tenants ensures a consistent revenue stream. If one space becomes vacant, other occupants help mitigate financial loss.

• Sustainability: Mixed-use developments often encourage walking and reduce reliance on cars, contributing to environmental sustainability. Many projects also incorporate green spaces, offering residents areas to exercise and socialize.

 

The Future of Mixed-Use Developments

Urban landscapes are changing, and mixed-use properties are central to this transformation. Former industrial neighborhoods, such as Williamsburg in Brooklyn and Long Island City in Queens, have been revitalized into thriving hubs of high-end retail and residential developments. “These areas were once factory districts,” Guarino said. “Now they’re bustling, vibrant communities.” Located just a few blocks from downtown Phoenix’s factory district, the upcoming Manzana vertical mixed-use development by local experts Intersection Development is slated to break ground in 2025. With early return projections of 20-24%, rumors suggest they are currently accepting a new round of investors.

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As cities evolve, central business districts are shifting from being solely office-focused to becoming dynamic, multi-use social hubs where people live, work, and play. Mixed-use developments will play a key role in building these future-ready communities.

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