Developers striving to create vibrant mixed-use projects in a more challenging marketplace are finding that they need a new playbook.
Experts from Hines, JBG Smith, and Gensler anchored a McKinsey & Company panel, Reimagining mixed-use districts: strategies for new developments in an ever-changing world, at the 2024 ULI Fall Meeting last month. Panelists explored innovative ideas and case studies to illustrate how to make complex mixed-use projects work in today’s market.
It’s not surprising that mixed-use projects, which have a history that dates back to Roman times, are once again evolving, notes Lisa Cholmondeley, a principal at Gensler: “We, as people, are always revisiting how . . . we gather to work, to eat, to play. We’re just at another inflection point of how we are gathering together.”
Mixed-use projects are facing a combination of cyclical and secular challenges that range from rising costs to changing demographics. The shift to hybrid work alone has been a huge game changer for a traditional mixed-use anchor—the office building. “It is incredibly hard to get even really great projects done today,” says James Patchett, a partner at McKinsey & Company. The panel discussion focused on McKinsey & Company research that found five key components of successful projects, including the need to:
- Diversify anchors
- Create a vibrant experience
- Leverage creative partnerships
- Build strong and integrated communities
- Put nature at the center of design
Nowadays, reimagining mixed-use projects has moved more to the forefront, as the office sector is saddled with a surplus of obsolete and underused office space, alongside changing requirements of what employers want and need from their locations to help draw people back to the workplace. “I think we’re going to have to do a lot more remaking over the next decade or two to really figure out how to change and shift the built environment in response to all these major secular shifts,” says Evan Regan-Levine, chief strategy officer at JBG Smith.
Finding new anchors
Developers are looking to expand their anchor search beyond the traditional core property types of office and retail to such alternatives as entertainment, sports, health care, universities, parks, and green space. “We’re trying to create magnets, and at every one of these mixed-use projects, whether it’s a placemaking village or a sports-adjacent development, the theme is . . . how do you create the heartbeat for that project?” says Michael Harrison, a senior managing director at Hines.
One project underway for Hines is the redevelopment of an 85-acre (34 ha) site in downtown St. Petersburg, Florida. The firm is partnering with the Tampa Bay Rays Major League Baseball team on the project. The Rays will build a new ballpark set to be the centerpiece of a major mixed-use development just east of the team’s existing Tropicana Field. The new ballpark is expected to open in time for the 2028 season. Once it is fully built out, the sports-adjacent development will feature roughly 8.5 million square feet (790,000 sq m) of mixed-use space. Development is expected to stretch over the next two decades
Hines has embraced placemaking as a new part of its strategic focus and ethos. Creating a successful mixed-use project today demands more than just building the traditional hardware of the bricks and mortar. It also requires good “software”—the ability to activate a project with programming, activity, and energy, so that the place is somewhere people want to be, says Harrison. For Hines, one of the secrets to achieving that activation is to bring its programming and activation operations people onto the design team.
Finding the right anchors was an integral part of JBG’s National Landing mixed-use project in Arlington, Virginia. The project’s anchors include the Pentagon, Amazon’s second headquarters, and Virginia Tech’s Innovation Campus. Overall, the project has roughly 6,000,000 square feet (about 557,000 sq m) of office, nearly 5,000 apartments, and a large retail footprint. “We think about not just the need to have one anchor but really the need to have four or five interlinked anchors to make our development successful,” says Regan-Levine.
Creating places for people
Another important aspect influencing mixed-use project design today is that people’s desire to gather and meet has come back stronger than ever since the pandemic. “One of the things that we need to think about as developers in these types of communities isn’t just to create the office box, create the apartment box, create the third spaces; that’s our playbook already,” says Regan-Levine. “How do you create the meeting spaces?”
At National Landing, for example, one of its anchor tenants is the Pentagon, which has a huge mandate and spending focused on defense tech. “How do we harness that as developers?” says Regan-Levine. Instead of just building space for the likes of Lockheed Martin or Boeing, it’s important to create space where those groups can work together. Developers need to build the infrastructure, which includes meeting space. Additionally, successful mixed-use projects must build not only for the anchors but also for the community. There must be connecting agents that foster collaboration and integration for a thriving ecosystem, he adds.
Developers do need to consider a new approach to mixed-use that starts first with a key question: what does a place need to be? Answering that questions starts with community engagement, which is “table stakes” today, Cholmondeley notes. Real engagement is not just opening a dialogue with communities to tell people what you’re going to do; it’s working with the community and asking people in it what they want, which sometimes produces an answer that a developer might not want to hear, she says.
Panelists agree that a big part of what makes mixed-use projects work is leaning into the location quotient. What does a place want to be? That answer can be place-driven, such as the history or story of that location or community. It also can be industry-driven, though, and reflect the anchors and tenancy.
Making the numbers pencil out
Ultimately, mixed-use projects also need to produce financial success. Developers are finding tangible data and examples to support the business case. For example, McKinsey & Company’s research shows that innovation districts drive top-line rents that are 10 percent higher than other districts. Projects with high customer engagement scores also generate multifamily renewal rates that are 20 points higher than ones with low customer engagement scores.
One of the tricky parts for developers is underwriting the financial contributions and return on investment for nontraditional anchors that serve as a critical magnet. For example, a key decision in the Potomac Yard portion of the National Landing project was donating land for the development of Virginia Tech’s Innovation Campus. On paper, it’s tough for developers and investors to look at the financial cost and loss of future income incurred from giving away a valuable piece of land. Foresight can bring into focus tangible benefits—raising value, accelerating development, leasing and generating a better return over the longer term—that giving away land to attract an important anchor may ultimately bestow. The same case can be made for subsidizing green space or no-credit retail tenants.
“None of that stuff is free, but it’s all about how we get creative around using data, using examples, and using community partnerships to really drive home a financial return associated with that ‘do the right thing for the place’ sort of decision,” Regan-Levine says. “But that’s becoming all the more critical, because so many of the first moves . . . we’re all going to be able to make are not going to be the move that pencils, and that’s a really important skill set that we need to build on.”
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