Mixed use developments are the flavour of the month with planning authorities, as they seek to regenerate run-down urban areas, but some developers and financial institutions continue to struggle with the concept, according to one leading proponent.

Their problem, says Cala Properties development director Alan Knight, is that they stick to developing or funding just one of the traditional property classes rather than mixing them.

He argues that as long as developers get the mix of property types right for the location, mixed use will win every time for the planners, investors, tenants and users - and that in some cases mixing uses is the only way a scheme will ever be built.

Mr Knight cites recent research by FPD Savills, which demonstrates that average annual returns on mixed use schemes actually outperformed those of single use commercial developments ? 11 per cent versus 10.5 per cent.

"So it would appear that there is a strong argument now to be put to those financial institutions and investors who shy away from mixed use," says Mr Knight, who is based at the Birmingham office of the commercial development arm of Cala Group.

"However, the research also found that of 400 proposed major mixed use schemes in the UK, 60 per cent do not yet have planning permission, and it cast doubt on the number of schemes which would ever see the light of day.

"This does suggest that for many developers mixed use is something that they aspire to, but cannot deliver. The key to mixed use development is the right uses in the right location, and not just believing that mixed use is one or more of offices, leisure and retail plus residential. Mixed use can be any combination of these property classes which deliver a greater value than the sum of their parts.

"The best mixed use schemes, which is to say those that get built, take into account not just the optimum return for investors, operators and tenants, but also the practicalities of obtaining planning permission and therefore unlocking the value of a site."

A prime example of how to get it right, according to Mr Knight, is the Cherwell Centre, an 85,000 sq ft multi-let shopping centre in Banbury. It's here, working in a joint venture with Stockdale Land, that Cala Properties developed a 70,000 sq ft mixed use retail and leisure extension.

Mr Knight says: "While the best returns may have been available from retail only ? we had identified Matalan as a tenant for 35,000 sq ft in its first centre of town store ? it was evident that bringing additional retail space into the town would have found opposition among other traders and the planning authority.

"So rather than find another retailer and make a hostile application, we listened to the desires of the local community for a leisure use. Surveys indicated that a bowling alley would prove most popular, so  we found a bowling operator and signed them up for a 20-lane alley on the second floor of our new building.

"Although Matalan trades long hours, this had the effect of extending the use of the building and optimising returns for our third tenant, NCP, which operates the car park for the Cherwell Centre.

"Mixing retail with leisure meant the development was still viable, but more importantly ensured that planning permission was granted as there was vocal support for this in the town and any opposition to the Matalan unit was forgotten."

According to Mr Knight, the joint venture partners had no problem funding the development.

"We delivered pre-lets and the extension was pre-funded by a German investment fund at a yield just in excess of seven per cent," he says.

Mr Knight acknowledges the additional problems that can arise when residential use is combined with retail, offices or leisure, as some insurers will not provide cover for apartments over retail developments, but he argues that, with a bit of effort from the developer, these problems can be easily overcome.

"This has also been the case for investors, with some restrictions on pension funds investing in residential property. However, with these restrictions starting to lift and the promised introduction of REITs and PIFs by the Chancellor at the last Budget could further boost mixed use schemes," says Mr Knight.

"It is no surprise that one of the biggest investment deals so far this year involved the purchase of part of one of Birmingham's original mixed use schemes, Brindleyplace, by a consortium of private investors.

"Mixed use is now established as its own property class and should be recognised as such. As with all schemes, developers need to get the offer right. As long as they do that, mixed use can be most lucrative."