Real estate developers have been asked to diversify their projects following a decline in demand for single use establishments.
In their latest research, investment management firm Cytonn found that mixed-use developments perform better.
This is since they offer greater efficiency for occupants.
“Mixed-use developments create an environment where occupants can live, work, play and invest all in one location, hence reducing time and cost incurred while commuting,” says the firm in a report on performance of such projects.
Cytonn says mixed-use developments are a good bet for developers since they offer higher returns, noting that from their research on Nairobi, buildings encompassing office, retail and residential themes have an average rental yield of up to eight per cent.
“When we compare the average rental yields of themes in mixed-use developments to the overall market performance for each theme, we find that office space and residential units in mixed-use developments have higher rental yields at 8.2 per cent and 5.6 per cent compared to the market average at 7.9 per cent and 5 per cent.”
Further, the report says diversified investments offer an environment where the various units complement each other in performance. “...building residents can create a ready market for retail services while firms occupying office space are potential clients for hotel, restaurant and conferencing space in the hotel” it says.
Further, having multiple components in a project creates multiple revenue streams that help to diversify the risk of a project.