A growing number of mixed-use projects (encompassing two asset classes or more) are being developed across Africa. This trend can be observed across the whole continent, from Casablanca to Cape Town and from Dakar to Nairobi. But what do these projects bring to the market from consumer and developer perspectives? Three main aspects stand out:
1. Creating the destination
In the real estate market, a destination can either be defined by the provision of new quality standards or by unique experiences able to attract customers and occupiers to an asset.
Mixed-use projects primarily aim at serving this second purpose by bringing all the elements of a district to a single building, thus creating a work-live-play environment for their occupiers and an attractive destination for customers. Globally, one of the most notorious projects of this kind is the Burj Khalifa, encompassing no less than six different uses and standing as an efficient soft power tool for Dubai.
Diversity of uses at an asset scale also creates a differentiated offering in a competitive environment, justifying potential rental premiums due to an enlarged range of services matching international standards. In a post-Covid environment, this diversity is aligned with a new role of the office space: providing an experience and a place fostering collaboration, more than only workstations.
2. Mitigating risks
In addition to differentiation purposes, mixed-use buildings offer an opportunity to mitigate risks on real estate projects, from a market, financial and contractual perspective. These reasons can be summarized in three main aspects:
- Firstly, the multiplicity of sources of demand on several asset classes (i.e. retail, office, hotel, residential) induces a quicker absorption of the project’s leasable area. As an example, a 100,000 sqm GLA building would tend to be rented much quicker in a mixed-use format than as a single asset class, where it would represent 2 to 4 years of take-up, depending on the market.
- The second reason is the limited correlation between asset classes, reducing the impact of sharp crises on the asset. While it seems logical for demand in square meters, the mitigation of monetary risk through the addition of hotel components (largely generating income in hard currency) is an opportunity to be considered.
- Last but not least, a mixed-use building offers the opportunity to be engaged with several types of tenants and terms of contract, varying in rental rates and contract durations. While some asset classes offer a secured long-term lease, others are more profitable and riskier.
3. Synergies and Inclusion in the City
As a last advantage, mixed-use developments open a world of opportunities to create synergies between the components of the project, especially when it comes to offering additional services to its occupiers (e.g. hotel and MICE services are of benefit to office and residential occupiers). Also, some areas tend to be underused during part of the day (parking, restaurants, etc.), and could be of use for other occupiers of the building, while limiting the built-up area to offer a similar level of service.
The latter aspect is even more important in a city centre environment, where urbanists and developers aim at offering a viable solution focusing on the density of construction. In the medium-term, we expect to witness the development of more and more mixed-use buildings in African city centres or to create a destination outside of identified nodes. This trend can also be extended to a city or regional scale, with the development of autonomous cities such as Diamniadio in Senegal or Tatu City in Kenya, which aim at offering a unique experience based on an efficient mix of uses.
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