Cost model: Mixed use

Shifting economic and social conditions mean developers are increasingly pursuing mixed use schemes but different use classes on a project can cause complications. The team at Alinea Consulting consider some of the challenges involved

01 / Introduction

The last time mixed use developments were the subject of a Building Cost Model, the world was a very different place: Labour was in government, Lehman Brothers was a financial powerhouse and the iPhone was a mere idea on the desks of Messrs Jobs and Ive.

However, many of the principles covered then could be applied now. Certainly, inner town and city planning policies continue to follow the PPG6 guidelines as well as a desire to create more destination areas for a diverse range of people and businesses. In those 10 years, the force of changing economics has arguably prompted mixed use developments to adopt greater flexibility, with the growth of sub-use classes such as pop-up retail and private rented residential. These changes are responses to the rise of the flexible worker: a generation defined by their use of social media as a key tool of communication, who favour greater flexibility in their work and home lives.

In parallel to this – and perhaps equally defining – is the Thatcherite impact on social housing, which, in part, led to the housing crisis and the recession of 2008-2012. This crisis created social, political and economic events which placed greater importance on flexibility for development success. Evidence of this can be found in the British Property Federation report from last year, highlighting how lease lengths in both commercial office and retail sectors have shortened since the turn of the century.

To cater for these shifting behaviours, the mixed use market has had to adapt accordingly and developers have increasingly adopted a mixed-use template where previously single use would have been deemed sufficient.

02 / Defining mixed use

The definition of mixed use can be varied, stretching from dual use entities (such as residential over retail in a single building) to large scale regeneration projects containing multiple buildings with multiple uses, developed in several phases over significant time periods.

This article will focus on inner city or town mixed use schemes, consisting of a number of buildings connected by a shared infrastructure. Smaller, more urban developments tend to form the majority of mixed used schemes as there are greater opportunities for small plots as opposed to acres for major regeneration within town centres. That said, and possibly with a few exceptions (principally around the scale and phasing of infrastructure), many of the principles covered can be applied to larger mixed-use developments.

Why mix use classes?

Mixed used schemes can be brought about by a number of circumstances. Often it is a combination of a developer’s ambition for a diversified income stream and the need to meet the local authority’s desired balance of use-classes.

Alternatively, it may be the replacement of a use-class already on site, which the development will be displacing, or a Town and Country Planning Act 1990 Section 106 obligation (S.106).

In all cases, the developer’s objective is to ensure that the different use-classes do not hinder one another but instead support and enhance the values of each use within the total scheme.

03 / Considerations for Design and Cost

Mixed use buildings are often some of the most challenging to accurately estimate during the early stages, not least because the interfaces between uses must be understood, whether they exist within one building or are part of the connected infrastructure and public realm between buildings. The mixture and priority of uses can obviously vary, and the cost model will need to have an inherent flexibility to accommodate movements in these attributes over the gestation of the scheme.

Uses can be wedding cakes; numerous layers for a number of uses, like The Shard in London, or connected by shared basements or other shared infrastructure, like a series of separate above-ground buildings such as at the Old Vinyl Factory, Hayes.

Similarly some schemes may share plant while others may not. In some cases, structure, facade or other elements may be shared between the uses leading to an initially arbitrary apportionment between use classes when benchmarking. In short, cost benchmarks often sit some way off what one would normally expect for a single use building. The following considerations will help the initial review.

Configuration

The location and arrangement of uses is a key driver of cost and efficiency. Generally, as the number of uses stacked upon one another increases, so does the cost as it requires extra cores, extra MEP requirements and so on, but it also has a converse effect on overall floor area efficiency as the non-value driving areas such as cores and corridors need to increase to provide the required segregation between uses.

Mitigating the construction cost premium of amalgamating uses within mixed use developments require architectural and engineering intelligence to find smart solutions to elements of design that can support more than one use.

Good examples could be building in the ability for the various uses to share a means of escape, common plant or shared energy strategies.

Full utility

Unlike single-use buildings, mixed-use will, by their nature, have a non-standard set of assumptions for infrastructure such as power or utilities into the building. Where, what and how these come into the building or buildings is crucial for understanding how well the mixed-use development can service all the uses. For example, A3 retail units may need to be designed to offer gas and electricity to serve both traditional gas kitchens and induction hobs. Additionally, and depending on the ownership arrangements, the utilities will need to be easily measurable in order to apportion the service charge with separate meter rooms. This level and multi-service of utilities will usually come at a cost beyond that normally expected for a single-use building, especially in instances where the existing building/plot supplies are lower than those now required. A full appreciation of all the diversions of existing infrastructure, as well as any upgrades to the new building, should be undertaken at the earliest possible opportunity.

Benchmarking the MEP services

In the early stages of a development, it is not uncommon for budgets to be based on benchmark rates and assumptions, which means thought must be given to likely plant requirements and how that plant is to be allocated and shared. It is important to determine whether shared plant is preferred rather than a separated strategy. This will have other implications in terms of the overall efficiency of the development as a separate plant strategy will take up more space within the development area, possibly reducing the lettable area.

In mixed-use projects which rely on shared plant, some of the benchmarked MEP costs can be higher but efficiencies tend to be better compared to separate systems. Overall this can be a source of opportunity from which both assets can take a shared benefit. When setting the budget, it is important to ensure that the initial cost study considers the development as individual uses as well as individual buildings.

Distribution of services

Developments which use retail along the ground plane could have a requirement for kitchen extracts and ventilation to serve the units. If other use-classes are located above or around the retail units, care over the positioning of the ventilation and kitchen riser extract is crucial to ensuring that noise and smell pollutants do not affect the other use-classes. Often it is not possible to place them anywhere other than on the roof and, as such, they need to pass through other uses and be serviceable at intermediate levels. This requires co-ordination of landlord access and riser access through the building.

Structure

There are two primary issues that need to be considered at the outset. First, the use-classes will all have their own preferred structural grid and structural depths (and thus their preferred material and method of construction). Offices and retail spaces crave long span structures, whereas residential will have varying facade lines for day light and tighter spans offering a variety of structural grids.

Depth of the structural zones and floor heights may also vary and this can be more problematic in stacked-use buildings where the traditional repetition of a single use cannot be achieved. To ensure that all these uses get grids appropriate to their needs the frame may require the incorporation of transfer structures. However, this needs to be evaluated with a cost benefit study as transfer structures can add significant cost. Such an analysis will include consideration of the sound and thermal insulation between the uses, among other things.

The optimal number of cores required to service various uses will be a critical study. In some cases cores can be shared, such as in retail and offices as there are opportunities to share the goods lift and some stair access, but this can impact leasing agreements and possibly affect the values if the retail demand becomes too burdensome.

Sharing a core between private sale and social rented residential is possible but problematic. It can be accomplished through the use of access controls and careful architectural planning. Yet it tends to be avoided where possible, and is only really accepted when the efficiencies of a split-core building would be so low that it becomes a worthwhile compromise.

04 / When, where and regional considerations

Time to pay up front

The programme of construction and the release of units or uses to market is initially driven by the sheer size of the development, as well as the connectivity (physical and market) of the respective uses. The drivers for this can be varied such as funding arrangements or when the development requires a positive cash flow.

Towers with stacked uses cannot easily phase the release of uses as they are too closely linked in construction terms, whereas a horizontally-arranged scheme can phase its works over a number of years. If it is intended that a mixed use scheme is to share infrastructure either through Escrow arrangements or via the building of public realm and roadways, this must be factored in to the phased design and upfront budgets, which places pressure on the day one sales or leases to bear the brunt of the costs but can positively impact on future development values. For larger mixed-use masterplans, limiting forward expenditure on major pieces of infrastructure – or matching such investment with income-generating development – is a persistent challenge.

The right spot

“Mixed use gold” has been discovered in recent times through the imaginative redevelopment of constrained sites, and there will no doubt be further and different prospects for realising value through a mix of uses as future building products respond to occupiers developing needs for flexibility and wellbeing. Over the last decade, these opportunities have come with cost and construction implications, broadly because many mixed use sites are found on transport and former industrial hubs. Transport hubs are natural places for mixed use developments as they provide strong connectivity. However, they may require adjustments to existing transport links, possibly adding a road or path and connecting into transport interchanges or transfer structures over train lines. These can add significant enabling works costs to the project, which generally need to be paid for on day one.

Post-industrialised Britain has a number of former factory, gas works and other industrial areas of unoccupied land next to major cities and towns; these could be prime spots for redevelopment. The challenges include remediating the land; making it ready for safe use for habitable dwellings. Successful mixed use developments – as seen at Argent’s Brindlyplace, Birmingham and King’s Cross Central, London – have shown that while these prime spots of land are hugely attractive in terms of location, the success of these impressive schemes has been realised despite the considerable cost to prepare them for redevelopment.

Mixed skill set

Mixed use developments, by their very nature, require a skill set that is broader than single use projects. For example, delivery of residential schemes is subject to different constraints and drivers of success than commercial office and retail.

This is an important consideration in the procurement strategy, with potential contractors requiring the breadth of ability and experience commensurate with the uses. Often the dominant use class will be an over-riding matter, and seeking contractors with strong, proven records in this area will be a prerequisite.

The scale and complexity of the infrastructure works may require specialist input, and the size and phasing of the masterplan will help to determine how the work will be allocated. As with any other construction project, assessing the capabilities, capacity and covenant of the supply chain is a must.

05 / Cost model

This cost model looks at a mixed use scheme, located in the South-east but outside the m25. It covers 50,300m2 in total gross area and comprises 9,000m2 of office accommodation, 1,200m2 retail units, and 23,500m2 residential split between 290 private units and 60 socially rented units.

The layout is two buildings sat on a single storey basement that has one flank as an under croft. The basement houses car parking and plant. Due to the lease and ownership differences of office and residential accommodation, it is assumed that the plant is not shared.

 

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