Mixed-use development: Why developers prefer using the model in city outskirts

The popularity of mixed-use type of developments has seen investors move to the outskirts of major Kenyan cities and towns. FILE PHOTO | SHUTTERSTOCK

The popularity of mixed-use type of developments has seen investors move to the outskirts of major Kenyan cities and towns.

Also called compact developments, mixed-use developments are an ecosystem that allows a seamless interaction of retail facilities, residential and commercial offices in a set-up of communal living.

These days, developers are putting up properties that allow people to work, shop, live and carry out leisure activities within the same environment.

In Kenya, leading properties such as Garden City, Two Rivers Mall and Global Trade Centre have embraced this mixed-use model. Others are Riverside Square along Riverside Drive and Muthaiga Square on Thika Road.

Two Rivers, owned by Centum Group, has several housing projects, namely Cascadia Apartments, Riverbank Apartments, and 26 Mzizi.

But what is pushing the popularity of mixed-use developments? Is there more money in this model? Is it a buyer or seller-driven popularity? And what are the financing complications?

Land availability and affordability

Kavit Shah, the chief executive of Maisha Development, says large natural expansion can happen only on the outskirts of the city, typically where there has been the development of national infrastructure.

In such zones, the land is readily available and more affordable than within the city.

‘‘These developments come with high-quality infrastructure, including water, power, roads, security and other support amenities. Developers are offered a ‘‘plug and play’’ solution,’’ he notes.

Besides the certainty of infrastructure, Shah says there are clear zoning and controlled development guidelines wherever these are built.

‘‘Mixed-use developments are usually well-managed and well-planned. This ensures a quality environment for long-term use,’’ the developer says.

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They are also typically located in high-growth areas. ‘‘There is the potential for high capital appreciation. That said, every development is unique in its own right,’’ Shah notes.

Njeri Njoroge, a realtor with Regent Management, a real estate company, says most of the buyers of this type of development do so for investment purposes rather than for their own occupation.

‘‘Statistics show that 70 percent of Kenyans living in urban areas are renters. This is a ready market for all types of housing units,’’ she notes.

She adds that ‘‘foreigners who do not mind staying in a commercial-residential setup’’ are mostly targeted by investments such as the Global Trade Centre (GTC) in Nairobi.

This population of expats has been rising in recent years, with many foreign companies, organisations and governments setting up shop in Kenya’s major cities.

The experts say these properties are especially popular with young professionals and those with young families who are more flexible to share most utilities.

‘‘Sometimes the pricing is prohibitive for the typical middle-class Kenyan who would want to buy such units. Some have struggled to get buyers for all the available units,’’ Njeri notes.

They are also put up with a preference for a certain clientele, usually high-end and middle-income.

‘‘The feasibility studies done before the project will show the developer who is likely to buy the property,’’ she explains, adding that the typology varies, with individuals in other demographics sometimes coming in to buy units.

‘‘Many people buy them and rent them out to young professionals and individuals that do not have [large] families,’’ Njeri says.

Buyer diversity

Shah, however, admits that buyers are often a mix of those purchasing properties in the lower range and those going for top-of-the-range options in the market.

‘‘We focus on a very diverse range of income groups. Within Tilisi, for instance, the cheapest residential unit sells for Sh4.95 million while the most expensive goes for Sh40 million. Between these two extremes, there are a number of other options that suit buyers of varying financial muscle,’’ he explains.

Some like Mi Vida, a development by Garden City, are investing in studio apartments to capture younger buyers, especially those that do not have families yet.

Last year, Mi Vida launched an affordable housing project that would see 600 units of studio apartments constructed in Ruaraka, Nairobi.

The units are expected to retail from as low as Sh2.8 million, allowing early and mid-career professionals to own a home.

Complimentary amenities

Besides putting up housing in mixed-use type of developments, real estate companies are also capitalising on other amenities such as schools to ease the movement of learners.

Crawford International School, for instance, is close to Tatu City and Garden City, both mixed-use type of developments.

According to Njeri, the desire for sustainability is also a factor. ‘‘This helps to minimise people’s motorised mobility and, therefore, to cut down their carbon footprint.’’

It is also driven by the space economy, she adds, which makes it possible for the developer to maximise the available space.

With cities in Kenya expanding and movement becoming harder as real estate projects come up, Shah argues that compact development might just be the solution.

‘‘People want an easy commute to work, to school and leisure spots. Everyone wants a life of convenience. The appeal of a mixed-use development where residents can access schools, hospitals, retail and recreational centres within the estate they live in is, therefore, hugely attractive.’’

The demand, Njeri says, is not buyer-driven in this market. ‘‘Our developers put up these types of properties after exposure in the developed world. Our buyers still largely prefer to buy homes and drive to the office and to the mall to shop,’’ she says.

She adds that investors take risks with the hope that the investments will bring income.

‘‘Developers are looking into the future with the understanding that land is a finite commodity. Its availability will become a problem in the future.’’

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Driven by visionaries

Shah says ‘‘visionaries aiming to disrupt the market’’ and to create a legacy in real estate are behind the growing popularity of mixed-use developments in Kenya.

‘‘By investing their money in mixed-use developments, real estate companies take substantial risks to create different markets in new locations,’’ he notes.

He adds: ‘‘The buyer is always king. In future, we will see projects that are [purely] buyer-driven emerge in this category.’’

Notably, most entities going for mixed-use developments are deep-pocketed, which allows them to build elaborate properties with multiple utilities.

Njeri argues that it is easier for such developers to get financing facilities because banks will often look at the possibility of the project taking off.

‘‘They also have a large portfolio that can support new development. Sometimes the developer is self-sufficient and does not necessarily require external financing.’’

For companies like Maisha Developments, which is putting up 1,200 units on a 30-acre parcel of land in Tilisi, financing may not be as straightforward, as Shah reveals.

‘‘It is a huge amount of capital needed for the completion of this project. The development has to be done in multiple phases over several years. Financing a project of this magnitude through the banks is usually an expensive undertaking.’’

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