Cost model: Mixed-use city-centre schemes

Introduction

After years in the doldrums, Britain’s cities are on the rebound, with huge investment going into centrally located commercial, retail and residential developments. Major centres such as Manchester and Birmingham have already transformed themselves, and others such as Liverpool have begun on their own regeneration. The effects of this trend can also be seen in Britain’s market towns, which are upgrading their retail in mixed-use schemes to compete with large shopping destinations.

Much of this trend can be put down to planning policy, particularly PPG6, which since the late 1990s has directed development into town and city centres and which increasingly is aimed at creating rejuvenated city-centre economies serving visitors and expanding local populations. Even supermarkets are now required in some circumstances to provide mixed-tenure housing as part of a development.

Retail-led mixed use is seen as key to the creation of a diverse and sustainable urban economy, creating a critical mass of activity, raising property values, increasing employment opportunities and introducing a local population to sustain services and create vibrant, lived-in public spaces.

In order to succeed, regeneration projects need to create a step change in the value of property in their target area. However, combining uses such as retail, leisure and residential introduces a number of challenges in terms of optimising value and compatibility between different occupier needs. This is a complex process that potentially involves a wide range of development partners, and that will benefit from specialist skills and early investment in getting the right development balance.

This cost model looks particularly at the integration of retail and residential large-scale schemes.

Credit: Nigel Young/Foster and Partners

Kown for its distinctive luxury flats, also has a separate a six-storey block of affordable housing above retail units.

Opportunities for mixed-use development

The traditional mixed-use development pattern in Britain’s towns and cities was broken by post-war planning and institutional investment in large single-use buildings, such as shopping centres, designed to meet the specific needs of tenants and investors. The legacy of many of these schemes has been to disrupt pedestrian movement and to erode the diversity and vitality that make town centres work. Many of these schemes are now obsolete and are due for redevelopment.

Because of political and social pressure rather than investor demand, mixed use has been adopted as the new planning standard, aimed at revitalising city centres and securing broader community benefits such as contributions to transport, infrastructure and affordable housing.

One of the things that makes mixed use quite complex is the considerable separation of residential and commercial expertise involved in design, construction, marketing and investment. In some cases, different design teams may be engaged to design the different elements. Because of the lack of shared knowledge, opportunities on schemes to add value can be missed, and projects can fall short of their objectives.

When planning mixed-use schemes, the following issues will have a substantial influence on the development mix and the initial layouts of the development:

• Size of the scheme Retail schemes need to be large to achieve a critical mass, and mixed use is much easier to co-locate on larger schemes, which allow better separation of uses.
• Separation of uses In larger schemes, the preference is to separate uses vertically in different buildings. In these schemes, vibrancy is provided by proximity of uses, and also by active management. This approach works well with mixed tenures in residential schemes. The advantages of this approach include the avoidance of the need to physically isolate different occupiers through design and construction and the easier packaging of the development for investment. Separation of uses horizontally in a single building enables the achievement of higher densities by combining high-value ground-level uses such as retail with residential, which secures value from building height. Horizontal separation is generally the only option available on smaller schemes where a mixed use such as ground-floor retail units might be imposed as a planning requirement.
• Influence of the primary use Retail and residential have some fundamentally different space planning and layout needs and the main use and source of value should determine the basic design parameters. A retail-led scheme will need to maximise rents by maximising the extent of the active frontage, and ensuring that the design, orientation and permeability of the scheme create “retail routes” for potential shoppers. A residential scheme in a similar location will aim to exploit views for value and will also seek to increase privacy and calm by encouraging pedestrians to move around rather than through the scheme. For most retailers, this effect would be disastrous. Similarly, the retail mix should be carefully considered. On larger schemes, the opportunity may be to address a lack of deep medium-sized units aimed at providing high-quality space for high-street multiples. However on a residential-led scheme, local demand for retail might support smaller convenience stores rather than larger units for restaurants and retail chains that are popular with institutional investors.

Value drivers for retail and residential – getting the mix right

Location, location, location is the mantra for both retailers and residential. Town centres provide the convenience and vibrancy that certain groups of residents value and the critical mass of shoppers upon which retail absolutely depends. Retail and residential also benefit greatly from the enhanced public transport focused in city centres, from central facilities such as parking and service yards and from secure, managed environments.

Thereafter, the priorities for each use diverge. For retail developments, the main issues include:

• Permeability and footfall Retail centres depend in exploiting existing and new pedestrian flows to direct shoppers to their tenants. In modern retail design, which is moving away from self-contained, covered malls, the on-street active frontage is critical to maximise rental values, so it is important to carefully locate and to minimise the number of access points and service entrances required to serve to residential uses on floors above.
• Retail mix This is all about providing a range of units to attract retailers and to support “multi-mode” shopping. The driver is the need to provide a range of large and small units to attract high-street multiples, niche retailers and smaller units for one-off stores, which give a scheme character and individuality. Leisure is increasingly a key part of the mix, aiming to extend the operating hours of a scheme. However, depending on the tenant, the incorporation of leisure into a scheme introduces a whole new set of requirements concerning servicing, acoustic treatments and wider impacts on other uses.
• Preserving investment value Retail units are typically targeted at the institutional investment market and are generally let on leases of 10 to 15 years. One of the concerns of mixed use is that the different lease and ownership arrangements for retail and residential might get in the way of being able to refurbish and reconfigure the retail units to meet future tenant needs to support rental growth. In order to provide long-term flexibility, units need to be capable of reconfiguration. Provision for the inclusion of mezzanines, though increased head height and strengthened structures, will also differentiate units and provide long-term flexibility. Sightlines and visibility Whether in malls or high streets, retailers need to compete for attention in a visually crowded environment. Feature entrances, signage, canopies and towers are key elements of design strategies to draw shoppers to a scheme, which may affect the attraction and value of some residential units.
• Access and servicing The location and design of service yards is important in terms of minimising the impact of deliveries to residents. With mechanical plant such as DX units located on roofs or in back-of-house areas, care also needs to be taken in acoustic design and access for maintenance. In order to minimise loss of sales areas, designers may also seek to use access stairs to residential as part of the means-of-escape strategy.
• Resilient operation Mixed-use schemes can face risks associated with the routing of residential services, particularly drainage, through retail tenant areas. Failure in these services could have a substantial impact on high turnover businesses such as food retail if an incident resulted in the temporary loss of sales floor area. Protected service routes can be created in transfer structures, but add substantial costs of the residential shell as they have to be sized to permit access for maintenance, resulting in increased building height and volume. Residential design priorities also concern securing the maximum value from the development. In a market with static prices, optimum specification levels and development efficiencies, together with the avoidance of unnecessary costs, have become ever more critical. Substantial issues that mixed-use developers will be concerned with include:
• Efficiency Residential development efficiency is primarily concerned with optimum unit size, net-to-gross ratio and wall-to-floor ratios. Ideally sized residential units may not match the depth of the retail units, requiring transfer structures, setbacks or a “wrap around” style scheme focused on a podium or courtyard. Layouts such as these also directly affect the efficiency of the wall-to-floor ratio as it may not be possible to accommodate the residential on compact floorplates. In mixed use, net-to-gross floor area ratios are determined largely by access and means of escape strategies and by requirements for services risers and duct runs.
• Unit size The size of units in terms of number of bedrooms and overall space allowances are key cost drivers and need to be carefully balanced against the target market. Two- and three-bedroom units are generally more expensive to construct because of the more extensive services and furniture and fittings. The selection of unit size also has a significant effect in determining the social mix of the development – particularly whether families with children will live there.
• Access and means of escape The multiple-core approach to access in apartment schemes has provided a highly effective means of minimising area take-up by corridors, enhancing security and enabling separation of different tenures. However, because of the need to minimise the impact of entrances on the active frontage, an opposite approach is often adopted, based on maximising escape distances through longer corridors and fewer stair wells.
• Orientation East-west orientation works best for living spaces and balconies, which may not align with the street pattern and pedestrian flows that drive retail values.
• Integration of open market and affordable units Mixed tenure is at the heart of the sustainable communities agenda and is a planning requirement for all major urban developments. With mixed-use retail schemes, the key issues are the nature of the affordable unit tenure and whether tenures are co-located in the same building or housed in separate blocks. In general, key worker and shared ownership tenures are considered to be most compatible with open market housing. Some aspects of mixed tenure work well in city-centre locations, such as the matching of demand for one- and two-bedroom units. However providing separate entrances may reduce the efficiency of the scheme and affect retail unit layouts. Management and service charge costs can also create a challenge for tenants or part-owners of affordable units, as the management requirements for retail tenants, investors and private apartment owners are likely to be quite demanding.

Credit: Tim Soar

Development in north London contains 15 storeys of flats above offices and shops. The site also contains two theatres, a community art club, a drama college and a bus station.

Design solutions for mixed-use developments

Successful design and construction of mixed-use schemes is focused primarily upon separating the two uses and managing interfaces where they occur. From the point of view of Building Regulations, mixed use does not present major challenges. However, the requirement for separation of uses and complex servicing arrangements inevitably add further pressure on developments with challenging cost targets.

• Transfer structures Solutions that enable the column grid to be carried down through retail and basement areas represent the most economic solution but may not be possible on projects that have large retail units with clear span structures. Transfer structures can, however, provide a useful zone for residential services distribution.
• Privacy Key issues for residents are control of noise, waste management and security. The main sources of noise in city-centre mixed-use schemes are leisure units, service yards, traffic and street life. Measures to control noise focus on the acoustic treatment of leisure units and management regimes to control noise breakout. In the residential element of premium schemes, mechanical ventilation may be provided to avoid noise breakout through open windows.
• Services distribution Vertical supply and waste to apartments is necessarily dispersed. Where space planning allows, efficiencies in distribution and riser design can be achieved through back-to-back and service wall arrangements. Ventilation from commercial uses will need to discharge at the highest roof level if kitchen or toilet extract is involved, and the duct runs will affect apartment space planning. Terminations at roof level also need to be carefully planned to avoid cross–contamination and to minimise noise.
• Main plant On residential-led schemes, where most of the value is derived from apartments, roof space is not likely to be available for the location of landlord or tenant mechanical plant. It will need to be located in basements, service yards and dedicated plant rooms, increasing requirements for risers and builders’ work. Extensive acoustic screening is also required for any externally located plant.
• Part L Carbon reduction targets embodied in the 2006 revision of Part L may have a substantial impact on the services design of apartments. Currently electric heating is the most popular option for heating because of the simple, dry installation and low capital costs. However, electric heating has a high fuel factor which means other aspects of the design, such as the building envelope, will need to work harder to meet the regulations. Some authorities, such at the London Development Agency, are likely to require a use of efficient but complex wet systems which has implications for distribution, management and maintenance of services installation. Because of scale, management regime and the existence of diverse demand, mixed-use schemes may also provided a good opportunity to exploit the benefits of combined heat and power systems.
• Car parking Town-centre residents use cars less often than their suburban counterparts but many will still require parking spaces on site. Spaces are worth £15-25,000 and can either be provided as dedicated on-site parking or as contract parking in public schemes. Parking ratios vary upon location and local authority policy. Providing space for shared car schemes and visitors is another issue that developers need to consider.
• Management of systems In mixed-use schemes, the management regime is an important aspect of maintaining the quality and the long-term value of the asset. It is also a potential income stream for the owner–developer–founder. If the developer has a continuing interest in the management of the scheme, it may be cost effective and good marketing to enhance the basic retail and residential shell specifications to include controls, fire alarms and sprinklers, as required in order to reduce recommissioning work and to facilitate effective long-term maintenance.

Use of common BMS systems on larger schemes may also add value by enabling central monitoring from a single point.

Mixed-use retail and residential scheme cost breakdown

This cost model comprises a scheme with three mixed-use retail and residential buildings set upon a shared basement car park and service yard. It forms part of a larger urban regeneration project. Separate cost breakdowns are given for retail, residential and basement car parking and plant areas.

The overall area of the development totals 40,000 m2, with 19,500 m2 of residential, 14,000 m2 of retail and shared basement totalling 6500 m2. The scheme has three levels of retail with active retail frontage to three sides of each block. Three hundred flats are included in the residential blocks, of which 100 are developed for the affordable sector. The retail units are left as unfinished shells whereas the residential is fitted out to meet the requirements of both open market and affordable sectors. Parking for 100 cars is provided in the basement.

Costs are based on prices current in fourth quarter 2005 based on a location in the West Midlands. Rates are appropriate for a project let on the basis of a two-stage tender. Costs include a basic fit-out to residential units but exclude demolition and site clearance, external services and public realm works, fit-out to retail shells, professional fees and VAT.

Consideration should also be given to factors including specification, project size, programme, location and procurement route.