Mixed-use developments becoming a popular option

Rising land prices and volatility in different property sectors are making single-use developments less favorable

March 05, 2018

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.

Suphin Mechuchep, Managing Director of JLL, says "Mixed-use developments that incorporate a mix of retail, office and/or accommodation units are nothing new in Bangkok. On top of many existing mixed-use developments, there are several new projects coming on stream, such as One Bangkok, The Iconsiam, The PARQ, Samyan Mitrtown and Singha Complex."

A more productive use of space, mixed-use developments bring about land use synergies. Combining multiple uses within a single development allow 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 door step. 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 mixed-use development's ability to serve an urban lifestyle.

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

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, these land plots are expected to achieve prices at no less than THB 2 million per square wah if they are put up for sale now. At this price, very few single-use development options are viable such as – a luxury and ultra luxury condominium development.

Mrs. Suphin says "As competition in Bangkok's condominium sector is growing, an office development may be an interesting option given the fact that the Bangkok office is currently undersupplied and rents are on the rise. However, to develop a Grade A office development on land acquired for THB 2 million per square wah and gain decent returns on investment, the development must fetch a minimum gross rental rate at THB 2,000 per square metre per month while existing prime Grade A buildings in premium business areas are currently achieving rents between THB 1,000 and THB 1,300 per square metre per month. At these current rental levels, only lease hold land in prime business areas can accommodate a new Grade A office development that would allow for decent returns on investment," she 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," says Mrs. Suphin.

"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.​

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 91,000 as of March 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.

About JLL Thailand

The firm’s operation in Thailand began in 1990 and today is the country’s largest international property service provider with 1,600 employees and more than five million square metres of property and corporate facilities managed. In Euromoney Real Estate Survey 2018, JLL was voted as Thailand’s number one overall real estate advisor for the 8th consecutive year and also won top votes for agency/letting, research and valuation in the same survey. The firm was also named Thailand’s five-star winner in the commercial property consultancy and commercial real estate agency categories at the International Property Awards Asia Pacific 2019/2020. For more information, visit jll.co.th.

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