Are There Investment Premiums for Mixed Use Properties?

Abstract

This paper investigates whether properties in mixed-use development have overall better financial performance than the other properties. We strategically choose four cases that we think well represent recent mixed-use developments in the United States, and compare key financial indicators for properties within and outside a half-mile radius from the project boundaries. The empirical study relies on quarterly property information since 2012, which we obtain from the National Council of Real Estate Investment Fiduciaries.Our panel regression analysis shows that office and retail properties within the mixed-use geographies have 37%and 48%higher market values respectively than those outside. Total returns are also higher for office (67%) and retail (63%) within the radius as well. By contrast, we find no clear return premium for being located close to the mixed-use geographies for apartments. Higher market values for apartments within these areas for apartments suggest that any mixed-use return premium is already bid into their prices. We also test the robustness of the conclusion by using Walk Score as an alternative mixed-use indicator. Our findings are mixed and probably support the developer and financier biases against the complexity of engaging in mixed use projects.