Mixed use

Mixed-use refers to the simultaneous or combined use of a building or parcel of land for residential and commercial purposes. The classic example is a mixed-use building with a retail space or medical office on the ground floor and residential units on the upper floors. Under building regulations, mixed-use is governed by the zoning plan; in mixed-use zones (MI) as defined by the German Land Use Ordinance (BauNVO), residential and non-disruptive commercial uses are permitted on an equal footing.

Mixed-use properties characterize the landscape of many established city centers: a bakery on the ground floor, a dental office on the first floor, and apartments above. This model has proven itself over decades because it revitalizes urban life, strengthens the neighborhood’s infrastructure, and secures income from various sources for property owners. In modern urban planning, the concept of mixed-use is experiencing a renaissance-neighborhoods with purely residential or office use are considered vulnerable to fluctuations in demand.

Legal Foundations of Mixed-Use Development

The BauNVO distinguishes between different types of building zones: In general residential zones (WA), commercial use is permitted only in exceptional cases; in mixed-use zones (MI), residential and commercial uses are permitted on an equal footing side by side; and in core zones (MK), retail and downtown uses dominate. Anyone wishing to use a building for commercial purposes in a purely residential zone (WR) requires a special permit or a change of use. The building authority reviews whether the planned use is compatible with the zone and whether the commercial activity will generate disruptive emissions.

For owners of mixed-use properties, the classification under building law is particularly important: Anyone operating a doctor’s office on the ground floor but located in a purely residential zone may need a change-of-use permit. Anyone wishing to set up a beer garden must clarify the permissibility of outdoor dining with the building authority. These issues should always be legally clarified before signing a contract and before undertaking renovation work.

Sound insulation between commercial and residential uses is also a sensitive area under building regulations: restaurants or music venues on the ground floor place special demands on the building structure. Noise and pollution control requirements can limit flexibility in the selection of commercial tenants and should be taken into account early on in planning and renovation projects.

Mixed-Use as an Investment Strategy

Mixed-use properties combine the stability of the residential market with the (often higher) space productivity of commercial uses. The risk is spread across different tenant groups: if a commercial tenant vacates, the residential income remains intact. However, managing a mixed-use building requires expertise in both areas of tenancy law-commercial tenancy law and residential tenancy law differ significantly. Banks sometimes value mixed-use properties more conservatively than purely residential properties, which can affect financing.

For institutional investors, mixed-use properties are often less attractive because they are harder to standardize. For private landlords with local expertise, however, they offer interesting opportunities: They can leverage the synergies between commercial and residential tenants and benefit from tenant diversification. A well-positioned residential and commercial building in a high-traffic downtown Nuremberg location can be a very stable investment.

Lease terms typically differ: Commercial leases are often signed for five to ten years with renewal options, while residential leases are open-ended. This structure provides planning security for the commercial space but simultaneously requires a professional approach to lease expirations and re-leasing.

Valuation of Mixed-Use Properties

Mixed-use properties are valued using the income approach, with residential and commercial portions calculated separately. Commercial spaces are valued based on net base rents per square meter and commercial property yields, which are often higher than those for residential space-resulting in a lower income value for the commercial space. The total value is calculated as a weighted average. When selling, the remaining terms of commercial leases and tenant quality are particularly relevant to value.

A commercial tenant with strong creditworthiness and a long remaining lease term significantly increases the income value of the commercial space and makes the entire property more attractive to buyers. Conversely, an expiring commercial lease without a secured follow-on tenant can noticeably depress the sale price. Owners should therefore strategically plan commercial lease terms if a sale is planned in the medium term.

Practical Tip for Owners in Nuremberg and Franconia

Nuremberg’s Wilhelminian-style neighborhoods-such as Gostenhof, St. Johannis, or the southern Old Town-feature a high proportion of classic mixed-use residential and commercial buildings. These locations are often situated in mixed-use or core areas and offer owners the opportunity to lease ground-floor spaces to medical practices, offices, or retail businesses. We advise you on which usage options are permitted under building codes and how to market the spaces optimally to maximize both residential and commercial income. If commercial spaces are vacant, we work with you to determine whether converting them to residential use makes economic sense.

Frequently Asked Questions

Can I simply use my residential building for commercial purposes as well?

That depends on the zoning district and the extent of the commercial use. Working from home as a freelancer is generally not a problem. As soon as customer traffic, employees, or disruptive activities are involved, a change-of-use permit is required.

How are commercial and residential tenants in the same building treated for tax purposes?

Rental income from both types of use is generally subject to income tax. Commercial rental space in mixed-use properties may be subject to sales tax if the landlord opts into the sales tax system. Individual tax advice is essential here.

Is a mixed-use residential and commercial building harder to sell than a purely residential building?

The pool of potential buyers is somewhat smaller, as investors with expertise in mixed-use properties are in demand. In prime locations, however, mixed-use properties are highly sought after and command attractive prices-especially when the commercial tenants have strong creditworthiness and long-term leases.

What are the special considerations regarding financing mixed-use properties?

Banks often value mixed-use properties more conservatively and set the loan-to-value ratio for the commercial portion lower than for the residential portion. If the commercial portion exceeds 50%, some banks treat the property as commercial real estate-with a correspondingly higher interest rate and lower loan-to-value ratio. Good financing advice is therefore particularly important.

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