Mixed-used building projects is the way forward - Darina Kerr

Scotland’s commercial property market is seeing a rise in mixed-use developments, where a building or series of buildings are created for different uses including residential, cultural, office, retail or entertainment. These properties are blended into one space which often feature common or shared facilities. Current examples include the St James Quarter in Edinburgh and Glasgow’s Clyde Gateway.

Mixed-use developments are growing in stature, partly due to the strong focus on placemaking and sustainability which sits at the heart of most current urban regeneration projects. This also reflects a widespread desire for diversification, with the aim of future-proofing property assets in an uncertain market.

At a time of significant market upheaval for the retail and office sector, mixed-use projects are an effective way of transforming city sites while also helping address shortages in housing and other types of accommodation.

These projects do however tend to require a more consultative process between developers and local authorities, from agreeing mutually-beneficial solutions for specific sites to negotiating public sector funding contributions which can be required to make these developments financially viable.

Darina Kerr, partner and real estate specialist at law firm CMS

This increased public sector/private sector interaction marks a changed relationship in the development process, and requires both sides to adopt an open dialogue to build understanding of each other’s ambitions, protocols and appetite for risk. Local authorities must recognise the importance of ensuring mixed-use projects are financially viable, while developers must put a firm focus on delivering clear, tangible community benefits.

There are practical ways that both private and public sector parties can work together effectively to ensure they reap the mutual benefits of mixed-use developments. Local councils which adopt a more flexible approach to the consenting process on mixed-use projects can ensure occupiers get quicker site access and generate revenue from it at the earliest possible stage.

Legislative constraints are another area where a new approach is required to maximise the benefits of mixed-use developments. Scotland’s existing prohibition against residential leases of more than 20 years duration was introduced in 1974, with the aim of protecting people renting houses from unscrupulous landlords. This legislation is, however, incompatible with many existing commercial property structures which seek to provide lenders with long-term debt security over sites where residential flats are located.

Developers have found ways round the 20-year lease prohibition to deliver purpose-built student accommodation facilities, but there is not yet any widely-accepted means of doing this when it comes to some large-scale residential transactions which involve long lease structures. While some interim solutions are being pioneered to address this problem, wider reform of the 1974 Act, which is no longer fit-for-purpose, seems a better solution and would help deliver social benefits. At present, there is anecdotal evidence suggesting that Build-To-Rent residential projects in Scotland are seen as more cumbersome and needlessly complicated than those being developed in England, making the case for legal reform ever more compelling.

As we can see from the increased level of interest in mixed-use developments, these are an effective tool in driving urban transformation and addressing some of our key social challenges, not least Scotland’s housing shortage. Better understanding and closer cooperation between public and private sector partners, along with modernisation of legal structures, will prove a progressive step forward, helping ensure we can fully grasp the opportunities presented by mixed-use.

Darina Kerr, partner and real estate specialist at law firm CMS