As mixed-use projects rise in urban centres and suburban areas across Australia, developers are responding to the preferences of millennials and downsizing retirees.
These groups seek walkable communities that are close to essential amenities, driven by changing demographics and environmental trends. Local governments support these developments for their ability to reduce infrastructure costs, create job opportunities, decrease traffic congestion and stimulate local commerce.
Any property developers or investors who are considering taking on a mixed-use development project should be aware of the key legal, design and management considerations that come with these increasingly popular ventures.
What Is A Mixed-Use Apartment Block?
Mixed-use properties are commercial developments that integrate more than one property type within the same building or site. Typically, these properties feature residential apartments on the upper levels, with commercial or retail spaces on the ground floor. Some may also include offices above retail spaces or medical, childcare and hotel facilities.
Insurance Considerations for Mixed-Use Apartment Blocks
If you’re thinking about investing in a mixed-use apartment block, you’re going to want commercial property insurance. This is essential for protecting the various components of a mixed-use building, covering everything from retail shops and office spaces to building insurance that includes cover for some exterior elements of your apartment building.
Strata insurance may also be required for residential tenants and their body corporation. Residential tenants are also responsible for securing their contents insurance independently, as is the case for all other property types.
Subdivision and Ownership
In a mixed-use project, the building components are often designed to be owned separately. This allows for one company to own the market-rate apartments, while another entity may own the affordable units.
Residential units might be sold as strata-titled apartments while retail, office, hotel or car park spaces could be operated by specialised companies. In these cases the components of the project must be legally subdivided.
This can be done by dividing the project into strata titles or where permitted by local planning regulations. Strata-titled projects in Australia are regulated by state and territory legislation, with management overseen by an owners corporation (body corporate).
These schemes are subject to specific rules and by-laws that govern property use, maintenance and shared responsibilities. In some cases community title schemes may be used instead. These allow for a more flexible approach to managing mixed-use developments.
For larger or more complex mixed-use developments, easements, covenants and strata management statements define shared obligations. This would include access rights, maintenance responsibilities and cost-sharing arrangements across different components of the project.
These legal structures provide responsible landlords with certainty that residential, retail and commercial elements can operate harmoniously within the same development.
Advantages of Mixed-Use Apartment Blocks
Mixed-use properties offer the advantage of diversifying risk, as income and value from other sections of the property can help offset any vacancies or underperformance in other areas.
For investors these properties present potential tax benefits. If an investor chooses to occupy part of the property, they may be able to claim business deductions. Alternatively they could live in one part while renting out the other, creating opportunity for additional income.
Entitlements
The future of mixed-use developments in Australia will increasingly focus on creating or being situated near “live, work, play, shop” environments that offer an all-inclusive setting.
With brick-and-mortar retail suffering at the hands of e-commerce, stores may be downsized, specialised and/or narrowly focused on serving local residents and workers. Restaurants or hotels, rather than stores, may serve as project anchors, along with the residential units.
From an entitlement standpoint developers must always contend with governmentally imposed conditions such as affordable housing, cost of living crisis, energy efficiency, traffic management and sustainability requirements (to name just a few).
A mixed-use development adds another element of complexity because it involves potentially incompatible uses in a confined area. Obviously a nightclub or rowdy pub may be unsuitable immediately below residences. So the use of restrictions must be strict enough to appease residents but flexible enough to make retail and other commercial spaces marketable.
Considerations for Mixed-Use Apartment Blocks
Management
The differing interests of residential and commercial owners in mixed-use developments can create challenges in management, decision-making and financial contributions. Issues such as design approvals for alterations, funding for future capital works and the allocation of maintenance costs can lead to disputes between owners of different property types.
A key consideration is who controls management and decision-making within the development. Strata by-laws, strata management statements and easement agreements need to clearly define voting rights and dispute resolution mechanisms, ensuring that decisions materially affecting one type of owner (whether residential or commercial) are handled fairly.
This can be complex in practice as strata laws in many states provide strong protections for residential owners, which may not always align with the needs of commercial or retail operators.
To navigate these complexities, many owners engage professional property managers who specialise in mixed-use developments. A strata manager can oversee financial management, enforce by-laws, mediate disputes and ensure compliance with legal requirements.
Parking
Developers must consider how parking will be allocated. Will spaces be assigned or unassigned, available for residential and commercial use or operated by a strata scheme, building management or a private company.
Don’t forget that modern trends such as the rise of electric vehicles (EVs), car-sharing services and changing commuter habits must be factored into planning. Many councils now require EV charging infrastructure in new developments, and some reduce parking requirements for sites well-connected to public transport.
Addressing these issues early in the design phase helps ensure that parking facilities meet both current and future needs.
Security
Mixed-use developments in Australia are designed to attract the public to their retail and commercial components, while also ensuring privacy and security for residential owners and tenants.
This often includes separate access points (ingress and egress) for residents to maintain a clear distinction between public and private spaces. Developers must consider whether parking areas will be segregated or gated to provide security and protection for both residential and commercial users.
Decisions should be made about whether common areas and amenities will be shared between different components of the development or restricted to specific groups. Proper lighting and fire safety installments throughout the development is essential. Not only for safety and convenience but also as a risk management measure to mitigate future design liability.
What’s the Best Mix?
The ideal mix of uses within a mixed-use property depends on the property’s location and the demand for specific services in the surrounding community. Developers typically aim to maximise the residential component of the development, especially if the property is in a well-connected area with plenty of amenities.
In such cases retail spaces are often included, while the commercial component may be kept to a minimum. That being said this strategy can vary based on the specifics of each location.
Residential properties tend to be more popular due to their lower risk, as they generally have a much lower vacancy rate compared to commercial spaces. With residential properties if there is a vacancy, the building is likely to remain empty for a shorter period.
On the other hand commercial properties are often subject to supply and demand, which can result in longer vacancies depending on market conditions.
Sales and Risk Management
Commercial and residential properties are typically marketed differently, appraised using distinct methods and sold under separate types of contracts.
However this distinction can be more complex in mixed-use developments, as sales and marketing regulations in many states and territories do not always separate residential properties from mixed-use properties that include residential components.
While retail and other commercial properties are generally less likely to be involved in prolonged construction defect disputes, this is not necessarily the case when these properties are part of a larger mixed-use development that includes residential uses.
From a risk management perspective, developers should ensure they have appropriate insurance for completed structures. It is also advisable to establish clear construction claims procedures and incorporate alternative dispute resolution mechanisms in all sales contracts, covering both commercial and residential elements of the development.
Navigating Legal Complexities in Mixed-Use Apartment Blocks Confidently
Mixed-use apartment blocks are quickly becoming a popular and practical choice for modern developments across Australia. These projects offer a unique blend of residential, retail and commercial spaces that meet the changing demands of both residents and businesses.
Engaging experienced professionals can be invaluable to ensure that all elements of the project are properly aligned and managed. In the long run mixed-use developments present a significant opportunity for developers to meet the needs of modern urban dwellers while making a positive contribution to the surrounding community.
By approaching the planning, construction and management of these projects with a clear understanding of the legal frameworks and best practices, developers can create developments that not only benefit their bottom line but also serve as valuable assets to the communities they are built within.