Mixed-Use Momentum: Emerging Markets Drive New Development
By Majid Radaei, RadCRE · · Market Updates
Emerging secondary and tertiary markets are seeing a surge in mixed-use developments, driven by urban migration and shifting consumer preferences. Projects like 'The Bend' in Chattanooga highlight this trend.
The Rise of Mixed-Use in Emerging US Markets
The commercial real estate landscape is witnessing a notable shift in development focus, with mixed-use projects gaining significant traction in what were once considered secondary and tertiary markets across the United States. This trend is fueled by a confluence of factors, including continued urban migration to more affordable and lifestyle-centric cities, changing consumer demand for live-work-play environments, and a general flight to quality by both residents and businesses.
Historically, mixed-use developments were largely concentrated in major gateway cities. However, developers are increasingly identifying opportunities in markets like Chattanooga, TN; Raleigh, NC; Boise, ID; and Nashville, TN. These cities offer a compelling blend of robust population growth, a growing talent pool, and relatively lower development costs compared to established primary markets. For instance, in Chattanooga, the multi-phase "The Bend" project, a 140-acre riverfront development, is transforming former industrial land into a vibrant mixed-use district, encompassing office, retail, residential, and entertainment components. Similarly, Raleigh-Durham continues to attract significant investment, with projects like 'Fenton' in Cary, NC, a 69-acre mixed-use district, boasting over 350,000 square feet of retail and over 200,000 square feet of office space, alongside residential offerings, contributing to the area's economic dynamism.
Investment into these emerging markets highlights their perceived stability and growth potential. According to a recent report by MSCI Real Assets (formerly RCA), investment volumes into non-major metros have shown greater resilience and even growth in certain property types compared to their primary market counterparts over the past 18 months. This indicates a strategic reallocation of capital towards areas promising higher yields and less competition for quality assets.
Key Drivers & Investment Appeal
Several factors are propelling this mixed-use paradigm shift:
- Demographic Shifts: A younger demographic, particularly millennials and Gen Z, prioritize walkable communities, access to amenities, and a blend of residential and commercial spaces.
- Employer Preferences: Companies are increasingly seeking locations that offer attractive lifestyle options for their employees, moving beyond traditional corporate parks to integrated urban environments.
- Municipal Support: Many emerging markets are actively incentivizing mixed-use projects through zoning changes, tax abatements, and infrastructure upgrades to foster economic development and revitalization.
- Cost Efficiencies: Land and construction costs in these markets, while rising, generally remain more favorable than in coastal tier-one cities, allowing for more aggressive proformas and higher internal rates of return (IRRs).
RadCRE Perspective
"We're seeing a fundamental re-evaluation of what constitutes 'prime' real estate," states Majid Radaei, Founder of RAD Commercial Realty. "Developers aren't just chasing population density; they're chasing quality of life, affordability, and economic vitality. From a capital markets perspective, the risk-adjusted returns in many emerging market mixed-use projects are simply more compelling right now. We’re working with clients exploring opportunities in places like Greenville, SC, and Knoxville, TN, where the cost basis allows for strong equity multiples even with conservative rent growth assumptions. Lenders are also becoming more comfortable with these markets, though they still heavily scrutinize sponsor experience and pre-leasing commitments, especially for the office components. Our role is to help clients identify these overlooked gems and structure capital stacks that align with both their risk tolerance and the market's evolving dynamics – often leveraging bridge loans for initial phases, with an eye towards agency or CMBS refinancing post-stabilization to capture favorable long-term rates."
Outlook and Future Growth
The trend of mixed-use development in emerging markets is expected to continue its upward trajectory. As remote and hybrid work models become permanent fixtures, the appeal of living and working in dynamic, amenity-rich environments outside of hyper-expensive metros will only strengthen. Investors and developers who can identify truly integrated, community-focused projects in these growth markets are poised for significant returns.
Tags: mixed-use development, emerging markets, commercial real estate, CRE investment, urban development, real estate trends, RadCRE, capital markets
Sources: MSCI Real Assets, CoStar, Commercial Observer, GlobeSt, NAIOP