“Shopping centers have seen a major transformation during the COVID-19 era, which pushed people into their homes. Retail had to regroup entirely. In Finland, those shopping centers relying on grocery stores and residential areas performed very well, since not all spaces were shut down. Yet the situation in downtown Tallinn was more radical. What took place at Viru Keskus during the COVID era? What will happen to shopping centers, and how should they be developed in a way that attracts people? And what answers can be found to the energy crisis?” writes Pontos’ Real Estate Investment Manager Kati Konsti.

For online retail, the pandemic was a jackpot. As shopping centers around the world were closed for long periods, only those providing digital services were able to continue business.

Now, with the restrictions lifted, visitor numbers have recovered better than one could have hoped. People can tend to their everyday matters again, matters that can’t all be carried out virtually: eating, fitting shoes and going to the hairdresser.

On top of that, shopping center visitors also increasingly seek encounters and experiences, ease and comfort.

Pontos’ portfolio company Viru Keskus started a significant renovation project in the midst of the COVID pandemic, and we have closely monitored trends in shopping centers.

Viru Keskus has revisited some basic matters and carried out systematic work to renew its visitor experience. The whole team does consistent, long-term development work to offer the experiences people seek. During the COVID period, the center lived a time of renovation dust, mask mandates, COVID certificate checks and lockdown carousels, and now new trends are setting in at shopping centers and paving the way for the future.

The ease of doing business and a multichannel buying experience are what draw people to shopping centers.

What attracts people used to online purchase to shopping centers?

The future of shopping centers is based on the ease of doing business and the quality of the experience. Investments in comfort, services, and experiences are necessary for attracting the city’s residents.

Passing the time and communality are nice alternatives to the sofa  shopping

A variety of choices and social meeting points are incentives to leave the house.

Viru Keskus introduced a new element to the visitor experience when renewing the restaurant world. The company centralized restaurants on the street level with a terrace opening to the park. Instead of a traditional restaurant world, the shopping center offers high-quality booths for different restaurants, which the customer can visit and create affordable delicacies. This way, even a large group won’t have difficulties in deciding on a restaurant.

The company has chosen the concept and interior design of the restaurant complex, Foodhall Toidutänav carefully together with the 15 restaurants involved. The location offers the perfect aesthetics for posting on social media and sharing the good vibe to friends and acquaintances virtually as well.

As weekends provide more time for enjoying friends and good food, the restaurants are open late in the evening. The terrace area is partially covered and will also be heated, making it comfortable even as the nights get cooler. Human encounters over good food have been in high demand since the June opening following a two-year period of only takeaways.

New decor, easier movements and renovated shopfronts are easy ways to improve the visitor experience

It’s the whole that counts, so even small details must be considered when increasing customer comfort. Viru Keskus has approached comfort in its renovation with very down-to-earth methods. It has softened the tones of the center’s surface materials and lighting, and also highlighted green elements, bringing nature closer to customers.

Being able to easily move between different areas and to the shops also matters for busy urbanites. At Viru Keskus, beauty and wellness services, for example, have been centralized to the Wellness area on the fourth floor with many added services. The area is called Ilusfäär.

Shop entrances and display windows, the so-called shopfronts, are the customer’s first experience with the shop’s selection. Creating the right mental images matter. The modernization of shopfronts at Viru Keskus has been a central element of the renovation.

Stores are good at successfully developing shopfronts on their own, and renters should not hinder their dreams too much. Larger tenants often have a more enlightened vision than the renter on what it takes to increase the conversion rate.

Yet the renter must ensure that the shopping center remains harmonic as a whole and that people continue to show up, even after the first impression. The whole must work in the right order with each customer profile in mind.

The renter should lead the change but rely on the tenants’ view

Fashion and items are easy to purchase online, which has forced shops that have grown online retail during the pandemic to invent new ways of attracting customers back into shops once COVID restrictions end.

I don’t believe renters can simply attract visitors to shopping centers and shift the burden of conversion to the tenants. They should offer communality, easiness and a superior customer experience on all indicators.

A new mindset is necessary for only real estate owners but also chain stores and entrepreneurs.

Previously chain stores could lure people to do online shopping by using, for example, products that were only available online. Now a new trend has been introduced: items only available in physical stores. This has been a common practice for large fashion chains, for example.

A hybrid shopping experience will combine the physical and virtual worlds of a shopping center. However, this will require that all operators working under the same roof work together, and the initiator of the work will most likely be the property’s owner.

Self-service kiosks, second living rooms and recycled fashion – what do we see in future shopping centers?

People who can be lured from their home sofas to shopping centers appreciate being able to do errands and shopping quickly, easily and pleasantly. There should be services available for smooth payments and home deliveries, along with extensive selections.

Self-service kiosks enable a smoother customer experience, and retail chains, such as Uniqlo and H&M, have already introduced them. Will others also rely on self-service in the future?

It would also be interesting to witness the convenience of online shopping being incorporated into physical stores: when can I select home delivery for my clothing purchases at the store cashier?

Many people hate carrying heavy items, which makes it difficult to move around the shopping center. Could you pay to get large purchases delivered home?

Are there still new ways to increase add-on sales in the cash register line? Could a fitting room suggest suitable or similar products to complement the outfit in question – as in, “you might also like these”?

It should also be noted that young consumers focused on environmentally sound and quality choices appreciate second-hand stores, which has turned the recycled fashion trend on its head.

Real estate investors will most likely value shops with recycled fashion. High-quality second-hand clothes can already be found at Relove and Stockmann department stores.

I believe that there will be demand for recycled clothing services at shopping centers too.

Innovative use of roof premises + with services = success factor at Viru Keskus

Shopping centers can offer a more diverse offering by utilizing roof surfaces and turning coziness into an asset whenever possible. Transforming a dear sports activity into a casual encounter with friends when running errands saves time, nerves and money. It is important that the customer wants to be there instead of just visiting the shopping center as a mandatory, everyday errand.

Viru Keskus’ roof invites players of padel, who can also sit down for a post-match session at Mikkeller craft beer restaurant. The company also renewed Tallinn’s most famous book store Rahva Raamat’s lunch café by expanding it into the parking hall. The cozy new look, including armchairs and reading corners, resulted in the international Bookstore of the Year award.

When the interior of a shopping center is developed in a cozy and easily-approachable direction, those who have previously sworn by brick-and-mortar stores can more easily find places to their liking. Being able to move indoors is an asset, and the past summer has taught us that cooling is also a plus.

In the future, shopping centers can become ecosystems for experiences, with all parties increasingly relying on each other. Hopefully, data will also be shared more openly, benefiting everyone from the property owner to the stores.

Inflation and energy crisis – how do they impact shopping center outlooks?

Living in cities larger than Helsinki and Tallinn is already expensive and has been for a long time. As a result, apartments are small. When square meters in one’s home are scant, shopping centers become natural living room extensions to grownups as well. Services and opening hours can then be expanded but there is still a long way to go.

The challenge for the renter is the rent, which has strongly been based on euros and square meters.

Renters have globally begun to develop models, where rent is determined by the turnover and purchase decisions made in the store. This way, it makes no difference if customers buy the products from the cash register at the store or by visiting the online store with their mobile device during their onsite visit.

AI to produce solutions for preventing emissions and cutting energy consumption

Russia’s horrendous offensive war against Ukraine is not over yet. Shopping centers are faced with the same challenge of available energy over the winter and the general increase in prices. The bearing capacity of the Earth must also be considered, as well as the prevention of climate, which has enormous global effects.

Artificial intelligence creates solutions for both cutting energy consumption and preventing emissions.

Energy consumption at Viru Keskus has been optimized for years with the help of R8 Technologies’ AI. The digital solution, which does not require add-ons for installment, uses sensors to recognize optimal indoor air conditions and guide the property automation system in deploying necessary output. This minimizes the use of unnecessary energy.

When electricity has to be bought with stock exchange pricing, the company’s AI considers hour-specific price spikes and steers towards the cheapest moments to purchase electricity.

Collaboration increasingly important in public traffic connections

Since shopping centers are at the core of cities and fuel is becoming more expensive while private car use is declining, the importance of public traffic connections must be considered.

Tallinn’s public transportation will see improvements, as the city of Tallinn
has decided to build a new railway connection from the harbor through Viru Keskus to the Ülemiste area close to the airport. Viru Keskus can thus be accessed even better with public transportation in the future.

We see the future at Viru Keskus optimistically despite the risks. Customers have embraced the renovated center surprisingly well. In July, visitor numbers and turnover reached the 2019 level, despite finishing work keeping a few larger premises still closed.

Will predictions of the future be correct? That remains to be seen, but by then, we will have already reached new trends. The key is to keep moving and developing further.

Kati Konsti

kati.konsti@pontos.fi

+358 40 570 9010

Help for energy saving initiatives? If you are interested in R8 Technologies’ AI solution, contact R8 team!

Klaus Ek (R8 Technologies)

klaus.ek@r8tech.io

+358 50 388 3366