Mixed developments now a popular option

RISING land prices and volatility in different property sectors are making single-use developments less favourable.

Strong competition in certain property sectors and rising development costs driven by escalating land prices have made it more challenging for developers to develop a single-use property project that can be easy to market and offer high returns on investment at the same time.

To cope with this challenge, mixed-use development is likely to become a popular solution not only to large-scale complexes but also single-building developments, according to property consultancy JLL.

“Mixed-use developments that incorporate a mix of retail, office and/or accommodation units are nothing new in Bangkok,” says JLL managing director Suphin Mechuchep.

“On top of many existing mixed-use developments, there are several new projects coming on stream, such as One Bangkok, The Icon Siam, The Parq, Samyan Mitrtown and Singha Complex,” she added.

A more productive use of space, mixed-use developments bring about land use synergies. Combining multiple uses within a single development allows developers to share common resources within the overall development, lowering development costs and maximising the use of land.

In addition, each component within the development complements the others.

Retailers benefit from a steady flow of foot traffic drawn from residential occupiers, hotel guests and office tenants. Residents gain from the convenience of having retail right on the doorstep.

For office tenants, the diverse mix of offerings within mixed-use developments undoubtedly raises the appeal of office space to their staff.

The presence of hotels and residential units within the same development provides an added benefit for office workers and visiting guests.

All these also reflect mixeduse development’s ability to serve an urban lifestyle.

“Mixed-use developments are not limited to large-scale property developments that comprise more than one buildings with different uses. Several single buildings offer a mix of uses, a trend that is growing,” says Mrs Suphin.

‘A sound solution’

There have remained a number of smaller land plots or sites for redevelopments in premium business areas that can accommodate only one high-rise building.

Sooner or later, these sites are expected to be sold or redeveloped, because the owners are either lured by opportunities to achieve highly attractive prices or concerned by potential impact of the new land and buildings tax that is planned to become effective soon.

Based on recent prime-land transactions, t hese plots are expected to achieve prices at no less than 2 million baht ($ 61,750) per square wah i f they are put up for sa le now. At t his price, ver y few single- use development options are v iable – a lu xur y condominium development or a fivesta r hotel.

“As competition i n Bangkok’s condominium and hotel sector is growing, an office development may be an interesting option given t he fact t hat t he Bangkok office is currently undersupplied and rents are on t he rise,” Suphin says.

However, to develop a Grade A office development on land acquired for 2 million baht per square wah and gain decent returns on investment, the development must fetch a minimum gross renta l rate at 2,000 per sqm per month while ex ist ing prime Grade-A buildings in premium business areas are current ly achiev ing rents bet ween 1,000 baht and 1,300 baht per sqm per month.

“At these current rental levels, only leasehold land in prime business areas can accommodate a new Grade A office development that would allow for decent returns on investment,” Suphin says.

“Therefore, in the context of a rapidly rising land cost and the need to reduce risk or volatility in different property sectors, mixed-use development is a sound solution that tends to become a popular option for many future property developments.”

“However, for these developments to be a sustainable success, getting the right mix of retail, office and accommodation is absolutely crucial. Design that allows for efficient property management is no less important,” she concludes.