Jevgenija Kiselova | Colliers Retail Agency Associate director
With the end of the rather long and severe restrictions on the operation of shopping centres, changes in the industry are inevitably expected, and not everyone will emerge successfully from the pandemic. In the future, their tenants will be much more cautious, given the gloomy experience of Covid-19.
As most of the current tenants of shopping centres have long-term contracts, a major transformation in the industry could be expected in 3-5 years, but we can already talk about vectors of change.
Moreover, these changes are by no means limited to the strengthening of e-commerce. At present, one of the questions asked by potential tenants of shopping centres has hardly been relevant to anyone until a year and a half ago - whether the company, the store, has a second entrance or can be accessed only from the inside, or from the outside—from the front of the building, ramps or otherwise? Will it be possible to work autonomously? At the same time, the need to work flexibly has become topical, with entrepreneurs setting the right working hours for themselves. The question has been asked about the possibility to advertise as a separate store, to be open and available not only in the shopping centre, but also able to be visited without even entering the centre.
The pandemic revealed that the beneficiaries are those who have had such requirements and needs in the past. For example, Sportland, when signing a contract with Domina shopping centre, wanted to rent premises with an outside entrance long before Covid-19. At that time, many wondered—what would happen if you had to use this alternative that customers would want to go around the building and use a less attractive entrance. The company proved to be one of the most far-sighted, allowing the possibility that everything will not always be brilliant, that an alternative is needed. On the other hand, most entrepreneurs assumed that they would be more protected right inside the centre.
Now the situation has changed in the opposite direction. Currently, companies emphasise that they are not only part of the shopping centre, but also a separate store, which can be visited without entering the centre, but through the entrance from the outside.
In the future, when improving existing shopping centres, working on new projects, these issues of additional entrances, alternatives, greater flexibility and autonomy of tenants, will have to be addressed by developers and managers.
It must be said that the signs of this trend appeared even before the pandemic. At one time, working on the concept of the shopping centre, Saga, the option of creating it as a retail park or a shopping park, where basically every tenant works on its own, regardless of others, where there are no common areas, was also discussed. However, most merchants at that time believed that the climate conditions in the Baltic region might not make this a popular option, and that the weather and also habits encourage people to stay in closed shopping centres. However, there are also several advantages why the concept of a retail park could work successfully in the Latvian market; most likely we will see this over time, when such a concept of retail space will begin to develop. Even now, there are tenants who demanded a second entrance (such as the aforementioned Sportland, as well as Baby CityToys), which proved to be the winners this spring.
Another area that will be affected by the change is leased space. Here, however, there are contradictory features and directions of development. On the one hand, tenants and the brands they represent will need more space to be able to provide greater distance between buyers while maintaining a fairly intense flow of people in the store. On the other hand, this contradicts the strategy of many brands that they had chosen even before Covid-19. Even before the pandemic, the choice of many brands was to reduce the number of stores, leaving a couple of spacious, representative flagship stores (therefore, for example, the store Zara was closed in the centre of Riga, which can be found in the most popular shopping centres). The brands focused on creating the store as a place to get an interesting, unprecedented experience, explore the senses, try something new, but directing the customer to buy the goods through e-commerce channels.
It could be assumed that those merchants who will be able to ensure active online shopping will not increase the area of their stores, but will focus on making the shopping experience more exciting. On the other hand, those companies that have to provide a flow of people, that cannot develop and secure internet sales, will consider whether they will have enough existing space or even want to increase it a bit.
In general, shopping centres will not be empty when Covid-19 restrictions are over. Of course, there are companies that will not survive and will leave the shopping centres during the pandemic, but most tenants have long-term contracts that will expire in 3-5 years, so the question is—what will happen next?
As the market is quite saturated with retail objects, future opportunities in this segment could be in the direction of a retail park or multifunctional objects.
These will be multi-functional buildings with shopping, medical services, sports centres and other leisure opportunities to offer. There will also be offices, perhaps warehouses and stock-office concepts there. New solutions will appear, not only a kindergarten inside the shopping centre, training courses could be offered there. In other words, the complex will have everything that encourages people to spend as much time as possible in one place. In turn, the share of retail space in shopping centres could decrease.
Overall, it can be concluded that some of the habits that emerged during Covid-19 are short-term, while others may stay for a longer period of time, and the need for autonomy may be the driver of the long-term trend. There are centres that are able to provide this, but others cannot. Some may offer separate entrances and more flexible conditions, while those centres that are built on several floors may have more difficulty in attracting tenants.
