Downtown areas should be vibrant, sustainable, and attractive. But the traditional business model behind them—retail—is becoming less and less viable. Rents are high, customers are shopping online, and many stores are closing down. The result: vacant spaces, less diversity, and dwindling appeal. Mixed-use concepts could change this, but from a legal perspective, there are many factors to consider.
Storefronts behind which nothing but dust has gathered for months. Shopping streets that used to be bustling now look like backdrops from a bygone era. This is deterring more and more people. Working from home has become widespread, and office work brings far fewer people into city centers than it did a few years ago. According to the German Retail Association, around 70,000 stores in Germany have closed their doors since 2015. For 2025 alone, the association expects about 4,500 more store closures. About two-thirds of cities estimate their downtown vacancy rates at up to 10 percent. At the same time, there is a growing desire for places where people can meet. Many people want to support local businesses and avoid additional CO2 emissions caused by mail-order shopping. How does this all fit together—and how can property owners and business operators respond?
One solution is mixed-use real estate
When rent, electricity, and heating costs rise and the customer base shrinks, property owners and tenants need creative solutions to keep the property profitable. One such solution is the mixed-use concept. Mixed-use properties are buildings or building complexes that integrate different types of uses into a single project—and, more recently, even within the same space: a bookstore or fashion boutique that doubles as a café. A beauty salon by day and a yoga studio by night. The different uses can include living, working, shopping, leisure, and culture, and can take place either simultaneously or one after the other.
Why Mixed-Use Makes Economic Sense
This trend is evident not only in terms of urban planning but also, increasingly, from an economic perspective. A study published in 2025 by the IREBS Real Estate Academy analyzed over 1,100 transactions in Berlin and Frankfurt am Main and concluded that buildings with a balanced mix of uses more often command price premiums rather than discounts. Greater functional diversification reduces the so-called concentration risk associated with single-use properties, stabilizes returns, and can lead to long-term leaseability. At the same time, mixed-use properties address the scarcity of developable land and urbanization, reduce commuting distances, and thus contribute to sustainability and climate protection. This creates dual added value for investors, owners, and municipalities: economic resilience on the one hand, and revitalization and quality of life on the other.
There are various models for mixed-use concepts
There are various types of mixed-use concepts. Land uses should not be combined arbitrarily, but should offer the greatest possible potential for synergy. Planning should take into account the needs of target groups and legal considerations.
Concurrent Use
One design option is to use the space for two different purposes at the same time—for example, a café with a coworking space, meaning that while the restaurant is open for business, a cooking class is held simultaneously in a separate area of the same space.
Staggered Use
Currently, the staggered use of commercial space is still somewhat less common. The goal here is to improve the property’s profitability by using the building for longer periods throughout the day or week. Examples of such concepts include:
- Office spaces and coworking spaces can be used outside of regular business hours for workshops, networking events, or as venues for startups.
- Dining establishments can offer a varied selection to appeal to different target groups throughout the day. A dining space can serve as a café during the day and be transformed into a restaurant, a cooking class, a bar, or a nightclub in the evening.
Implementation of Parallel Use Under Tenancy Law
There are also various options for structuring mixed-use leases under tenancy law. The landlord can lease the property either to a group of tenants, to several separate tenants, or to a primary tenant, who then subleases portions of the space.
- If a separate lease agreement is entered into for each unit, specific terms and conditions for each unit can be taken into account. This arrangement offers a high degree of flexibility in managing the property and clearly delineates the rights and obligations of the tenants and the landlord.
- If multiple tenants enter into a joint lease agreement with the landlord, all types of use must be specified. In such cases, the tenants generally do not have the option to terminate the lease individually.
- In practice, it often happens that one of the tenants moves in first and then wishes to sublet a portion of the space to another business operator. Even for commercial properties, subletting generally requires the landlord’s consent. Furthermore, the primary tenant is liable to the landlord for the actions of their subtenant.
Lease Agreement Provisions for Successive Tenancies
There are also several options for staggered use.
- Since lease agreements may be for a limited term, separate lease agreements can also be entered into with different tenants in this case.
- The lease agreement can also provide tenants with the flexibility to use the premises as needed and to adjust the hours of use. In practice, the premises are then rented on a short-term basis and only for limited periods.
- However, for long-term uses that take place one after another, a joint lease agreement among the various tenants or a sublease agreement is generally more appropriate.
It is important to remember that tenancy law makes a strict distinction between residential and commercial leases. It is very common for a building to be used simultaneously as both residential and commercial property, but this can lead to many conflicts.
What needs to be considered from a land-use planning perspective?
If a zoning plan exists, all planned uses must comply with it. However, such a plan is often lacking, particularly in established downtown areas. In such cases, it depends on whether the project fits in with the character of the immediate surroundings. Every planned use requires approval. The Land Use Ordinance is increasingly allowing for greater mixes of uses. Even if the zoning plan does not provide for the planned use, this is no reason to abandon the project immediately: Rather, there is the possibility of an exemption, or a procedure to amend the zoning plan can be initiated—though the latter can take a very long time.
Which development areas are suitable for mixed-use concepts depends on the specific use. Mixed-use zones and urban areas are expressly designated for the coexistence of residential and non-disruptive commercial uses and will be suitable for most projects. Core areas are also generally suitable for a mixed-use structure. These areas are primarily intended for retail businesses and central economic, administrative, social, and cultural facilities; however, residential units are also permitted.
Even if various land uses are generally permitted under zoning laws in a given area, they must also be compatible with one another on a case-by-case basis. One land use must not cause unreasonable disturbances or nuisances to another land use. Typical areas of conflict include:
- Noise, for example, when restaurants and retail stores are located together,
- Odors, for example, when combining dining and living spaces,
- Traffic, for example, in a mixed-use area combining commercial activities (including deliveries) with residential use
What needs to be considered from the perspective of building codes?
All building code requirements must be complied with for all types of use. A change in use generally requires a building permit, unless an exception applies. Different types of use may also be mutually exclusive.
Depending on their size and type of use, mixed-use properties may be classified as special-purpose buildings. A bookstore with a small café will generally not meet the required threshold, whereas a neighborhood complex with restaurants, retail spaces, and event areas will. Classification as a special-use building has procedural implications: As a rule, a comprehensive—rather than a simplified—building permit process must be followed, which involves a detailed review of all public law regulations by the building regulatory authority. Conversely, in the simplified procedure, only the scope of the official review is reduced; the substantive requirements, however, remain unchanged, and responsibility for compliance shifts to the building owner and the designer.
In the area of fire safety as well, different levels of requirements apply to different types of use, and each must be observed. If, for example, a café is added to a boutique, additional fire safety measures may need to be implemented. Additional environmental protection regulations may also need to be observed. Careful floor plan design—including buffer zones between the different uses if necessary—is advisable in this regard. The number of parking spaces required under building codes must generally be demonstrated for each individual use. If parking spaces are used for dual purposes—for example, because a large proportion of a bookstore’s visitors also use the integrated café—or if the uses occur at different times, multiple counting of parking spaces may be considered.
New Developments: Lawmakers Are Picking Up the Pace
Under the“Bau-Turbo”law, which took effect on October 30, 2025, (Section 246e of the German Building Code, BauGB), municipalities may, for a limited period until the end of 2030, deviate from building code requirements and permit residential uses—such as the conversion of vacant commercial properties—without amending the zoning plan. Innovative noise protection solutions are intended to make it easier to live near commercial areas. In addition, in May 2026, the Federal Cabinet approved a “BauGB upgrade,” which is set to take effect on January 1, 2027, and is intended to declare housing construction in tight markets to be in the overriding public interest. To support this, the KfW Program 266 “Commercial to Residential” has been promoting the conversion of vacant properties since July 1, 2026, with grants of up to 30,000 euros per newly created residential unit. In addition, the planned Building Type E is intended to enable simplified building standards. These diverse legislative initiatives are not only intended to promote residential uses but can also be leveraged to foster the increased development of mixed-use concepts.
Mixed-use real estate can help sustain the retail sector
Mixed-use concepts are often a good solution for properties whose profitability would otherwise be at risk, and for making German city centers more attractive overall. Many municipalities are interested in keeping their downtowns and central areas vibrant. A wide range of legal options is available to achieve these goals.
