Mixed-use real estate projects provide a solution for overcrowded cities and also cater to the growing demographic of Millennials, which means this developing trend is set to grow further in the years to come.
Working and shopping within walking distance from home sounds like a dream come true for any Bucharester stuck in traffic or crammed into overcrowded subway trains at rush hour. Mixed-use real estate projects that bring together office and retail, or even office, retail and residential components under the same roof, provide a solution to overstretched city infrastructure – one that local developers are increasingly open to investing in.
“Romania is starting to develop some of the characteristics that led to the large-scale adoption of the mixed-use project concept in the Western and Asian real estate markets,” Stefania Baldovinescu, senior partner at Colliers International, told BR. These include rapid growth and urbanization, the increasing cost of land, which in turn determines a need for more intense land use, growing competition between developers which leads to greater interest in more differentiated and innovative projects, and the development of suburban office districts combined with ever growing traffic, she outlined.
The synergy resulting from combining office, residential and retail spaces has been confirmed over the past decades and is not totally new for the local market either, Oana Iliescu, managing director at Cushman & Wakefield Echinox, told BR.
Some of the first such projects on the local market include Upground in Pipera, which is made up of two office buildings as well as more than 500 apartments, and the Plaza Romania shopping mall next to which Anchor built the Anchor Plaza office building more than a decade ago, she added. The combination of retail and office has been replicated on a larger scale by AFI Europe, which has built 70,000 sqm of office space next to the AFI Cotroceni shopping mall.
Similar projects can be found outside Bucharest as well. Iulius Group has invested in a mixed retail and office project in Iasi and is now replicating that model in Timisoara. Local businessman Ovidiu Sandor is betting on a residential and office project in the same city after having previously invested exclusively in office developments. In Brasov, Immochan is looking at adding a housing component to its shopping mall, while AFI Europe has announced a retail and office project of its own. Similar schemes can be found in Cluj-Napoca and Oradea.
Notably, some of the first projects of this kind were not initially designed as mixed-use developments but rather as retail projects, for example, Anchor Plaza, AFI Park, Iulius Mall Timisoara and Palas Iasi, notes Marius Scuta, national director and head of the office department and tenant representation at JLL.
“The opportunity to build office space next to these projects arose later with the boom of the IT, BPO and call center industries. The amenities provided by the existence of a shopping mall, plus its location, have become a magnet for many companies. Yes, we can say that all of these projects have been and continue to be successful,” he told BR. Which is why developers are now considering mixed-use projects from the start.
Developers show no mixed feelings
One such developer is Vastint Romania, currently developing a mixed-use real estate project in the Timpuri Noi area of Bucharest, which it says will bring together offices, retail and housing under the same roof.
Antoniu Panait, managing director of Vastint Romania, told BR, “When done well, mixed-use development sections work together and complement each other to benefit the people, no matter the combination.” Offering the “full package” is one of the main advantages behind this type of development, he adds. “It helps both the employee working within the complex and the employer, supporting a better work-life balance and increased productivity, by greatly reducing commuting time and associated stress, among other benefits.”
Not only is Vastint Romania venturing into a part of Bucharest so far left largely untouched by developers, but it is also including a residential component in its Timpuri Noi Square, something local players have been reluctant to do so far. “The residential component is currently planned as the last phase of the project, following 100,000 sqm GLA of modern class A office, commercial and retail services already on their way with the first two buildings and a plaza,” he told BR.
Elsewhere, Immofinanz Romania says that the various segments of the real estate market are becoming less distinct as developers tune into the needs of a changing consumer. “As Immofinanz’s strategic focus revolves around the office and retail sectors, we have seen how the lines between these areas can become blurred. Thanks to an optimum and varied tenant mix, all our office properties in Bucharest provide the employees working there with a wide range of retail offers, right in the buildings,” Sorin Visoianu, country manager of operations for Romania, tells BR. He adds that there is a big potential for this type of mixed-use building in Bucharest, particularly as the local economy develops and the market matures.
This is what the company also has in mind for its future Iride City project in Bucharest, which will be built around its existing Metroffice office project. “As with all our projects, we designed the masterplan for Iride City in response to market needs and demands, with a look at the future evolution of the Romanian capital. The idea is to gradually develop a revitalized quarter within one of Bucharest’s major business hubs,” noted Visoianu. Immofinanz says it is developing the project in phases, depending on the ever-evolving market context. At present it says it is focusing on office properties by further developing Metroffice, and modernizing the existing Iride Business Park.
Outside Bucharest too, there are several mixed-use real estate projects presently underway. Local real estate investor Ovidiu Sandor has recently started works at a residential and office mixed-use project in Timisoara, western Romania, after having previously invested exclusively in office.
“In real estate the land often dictates what is built on it,” he told BR. The developer’s target was to secure the plot of land Isho is now being built on because of its location. Mixing office with residential later became a natural option given that there is demand in the city both for a new generation of office buildings and new apartments, he adds.
Nonetheless, he stresses that there is not only potential for further such projects to be developed but that they meet a real need as long as the developer secures the right land.
“The most interesting part of such large-scale projects is coming up with the mix. The resulting projects have the potential to become neighborhoods or actual small-scale towns based on their complementary amenities. The infrastructure is poor but perhaps this is the beauty of large-scale projects. They can really leave a mark on the city, especially in secondary cities,” said Sandor.
The emergence of such mixed-use real estate projects on the local market is a natural evolution given the speed with which consumers change their demands, adds Laurentiu Manea, manager of office buildings for Openville. Openville is a mixed retail and office project that Iulius Group is developing in Timisoara around its existing shopping mall. This is not the developer’s first venture of this kind. In 2012 it opened Palas Iasi, an integrated real estate project featuring both retail and office.
Based on that experience, Manea says that building a successful mixed-use project requires solid background and expertise in “designing and planning its components, determining their share in the project and the way these synchronize and complete one another, financing, the actual construction and most importantly actually running it,” he noted.
When successful, such a project is well integrated within the city and manages to host different but complementary functions for several consumer categories, he goes on. “And this is 24 hours a day, seven days a week. It is a working place but also offers those working there the option to relax after office hours. It is a shopping destination, an open air socializing and entertainment venue for the local community made up of young people, families and the elderly. This is not theory but the experience we have built with Palace Iasi,” he added.
Moving on to Brasov, about one year after delivering the Coresi shopping mall, real estate developer Immochan started work last March on adding 13 blocks of flats consisting of 570 apartments to the project. The company’s long term plan for its investment has been to develop an entire neighborhood around it, Tatian Diaconu, the CEO of Immochan Romania, tells BR. “For this reason we have left land for the construction of schools, kindergartens and green areas,” he explains.
For the construction of the residential component, Immochan has teamed up with another developer, Avantgarden Immo Invest. The first apartments are scheduled for delivery this year and some 95 percent have already been pre-sold, according to company data.
While mixed-use project offer end-users obvious benefits, there are advantages for developers as well, says the CEO. “They come with a lower risk as there are several income-generating complementary functions which belong to a well-defined segment. It also means optimized costs due to integrated services,” he explains.
Add the fact that all this answers to the changing needs of local consumers and it becomes clear that more such projects will follow in the years to come. “We believe that there is potential as cities continue to grow, resulting into crowded urban areas which need to be covered by such mixed-use projects that offer a wide range of complementary amenities and services. There will continue to be a high interest for retail and residential throughout 2017 and developers will turn their attention increasingly more to mixed-use projects that can offer end-user a complete ecosystem,” says Diaconu.
The perfect mix?
The advantages that mixed-use real estate projects offer end-users are obvious. Saving time otherwise spent in traffic either by living right across from the office or at least being able to stop for groceries, run errands, hit the gym or grab a bite in a cafe or restaurant on the way home from work count a lot for today’s employees. “Recent years have also seen the focus shift to the work-life balance. While a few years back people didn’t concern themselves too much about how much time they spent at work, the new generation treasures free time and easy access to the office,” Razvan Iorgu, managing director of CBRE, told BR.
This is particularly the case for the so-called Generation Y or Millenials, who are making up an increasingly higher proportion of the occupants of modern office buildings. “We live in a time when ‘now, here and close by’ have become the norm. If we add the fact that almost half of those who work in modern office buildings are part of Generation Y, the emergence of mixed-use projects is a normal step,” George Didoiu, associate director of the office agency at Colliers International, tells BR.
All in all, this makes office projects that offer a retail and entertainment component, and maybe even residences, attractive to companies looking to lease office space. Mixed-use properties can boast further advantages for developers and commercial tenants alike, consultants add. Combining office, retail and residential in the same project creates synergies, the most common of which include business generation across projects, such as offices providing retail clients and increased exposure and marketability, plus better rents, as office space itself can become more attractive to companies due to the complementary hotel, retail and/or residential facilities, says Baldovinescu. “Additional profit-enhancing benefits also come from cost reductions due to economies of scale, better use of land through higher project densities and faster absorption,” she added.
Mariana Stamate, head of property management at JLL, agrees that mixed-use projects can help optimize running and maintenance costs. Such projects can also be more attractive for financing banks given that they offer a diversified risk profile, although banks remain selective when it comes to financing developers and pay close attention to their track record, points out her colleague, Maxime Otto, senior consultant on capital markets.
For these reasons, consultants are forecasting that more such projects will be developed on the local market. In Bucharest there is both demand and available land to back this forecast, they note.
According to Colliers International data, over 500 ha of land is available in Bucharest as part of former industrial platforms which are sought after, including for such developments, Sinziana Oprea, associate director, land agency, with the consultancy, told BR. “In some cases, we can even see developers from different market segments working together in order to secure a certain location,” she said.
So far office and retail mixed-use projects have been the most popular combination, and consultants say that this trend will continue.
There are also signs that new types of projects will emerge. On more mature markets the combination between retail and residential is more common, says Stamate. The advantage of such schemes includes the efficient use of land and coming up with an attractive residential concept that offers residents numerous amenities. The downside is that reaching 100 percent occupancy is harder to achieve for such mixed-use projects and inconvenience can arise from living so close to a commercial area, she adds.
Office and residential is another option for the local market. “We expect there to be more mixed-use real estate projects that combine an office and a residential component. People want to be as close as possible to their workplace and spend as little time as possible in their car,” added Iorgu.
The coming years should also see the development of projects that bring together office and some light manufacturing component; however, “the most attractive combination will remain the one between office and retail as they both have similar land requirements – large areas in central and semi-central locations with good access to public transportation,” commented Iliescu.
Altogether, more such projects are to be expected, especially in cities that are “dynamic urban centers that constantly attract new residents through education and job opportunities. In Romania these are Bucharest, Cluj-Napoca and Timisoara as well as Iasi, Brasov, Sibiu and Oradea,” she concluded.