March 16, 2017


Since the number of commercial property offers is growing in conditions of increasingly fierce competition, this could make their rent prices more favourable from the point of view of merchants, says Ruben Gornischeff, a member of the management board of Capfield, the management company behind the Norde and Lasnamäe Centrum shopping centres, in an interview with

“So far we’re still managing to raise rent prices, but I can see that situation changing in the next few years, with no further growth,” he said, adding that they have entered into agreements which are more favourable to Capfield in connection with the turnover in tenants at Lasnamäe Centrum.

Gornischeff is very clear in saying that in the future, rent levels will come into line more with specific shopping centres and their locations, which is directly linked to the centres’ popularity. “Given the growth in competition we’re likely to see in the coming years, I’d say there’s room on the market for rent levels to be adjusted and differentiated based on location and situation,” he said.

Read the full interview with Ruben Gornischeff.

Ruben Gornischeff

Why did you decide to rename Norde Centrum ‘Nautica’ following its makeover?

The main reason is that it’s set to change completely – the way it looks, what’s in it and its overall image – so we came to the conclusion that its name ought to get a makeover as well. So that it wouldn’t be associated with the old shopping centre.

Norde Centrum was built something like 13 or 14 years ago, based on what people knew then, and at the time there wasn’t much more to it than the supermarket. Now that the city and the clientele have changed and their demands have grown, the centre needs to be brought up to date, with greater value given to its location, making the most of its position at one of the gateways to the city there at the port. Given that the centre is right next to some busy roads and well-trodden footpaths, right in the heart of the city, now’s the perfect time to breathe some new life into it.

Growth is our goal, after all. There’ll be more clothing stores and eateries in the new shopping centre, and a bigger range of recreational options as well. Health and beauty services will be better represented, too.

When we started planning the expansion of the centre we realised that we had to capitalise on its location – what makes it special and what that offers. It went without saying in the end that the running theme and look of the new centre should take its lead from the sea and the port. And that’s something we wanted to reflect in the name, of course. We went for Nautica ultimately because of its maritime associations, and because it just seems fitting somehow in a Northern European kind of way.

What is there that will be new and exciting about Nautica, that wasn’t there before?

Visually the most obvious difference is the architecture and design of the new centre, which we’re really excited about, and we’ve done a lot of work to get it right. To my mind it’s not only beautiful and innovative, but also interesting – it’ll spark people’s imagination.

I can’t say with 100% certainty that we’ll be implementing completely new technology in the centre, but we’re working on it. We’ve reached a phase where we’re not only looking for tenants but also addressing the other things that will form part of the centre.

We’re doing our best to organise in-centre communication and advertising in such a way that it makes use of the latest digital solutions. We’re looking at a number of ways of giving the centre something original. We’ve weighed up quite a few different options, and we’ll hopefully choose something interesting.

We try to bring every building we work on as bang up to date as we can so that the auxiliary costs tenants incur are as low as possible. We look for solutions that save on energy, from ventilation to lighting and everything in between, so that people can keep an eye on their outgoings and actively manage their processes.

We’re also looking for a customer-friendly parking solution that works for the centre of Tallinn. And we also want to offer people everything that’s not shopping, too, by which I mean somewhere to sit, somewhere to recharge their phones and make use of the free WiFi. We have to make all of these kinds of aspects as convenient as possible for customers to make sure they come back to us.

The neighbouring Porto Franco development is due to open its doors in the next couple of years. How big a competitor do you see it becoming?

As a project it’s been on the market, as it were, for years, so we’ve obviously been aware that it’s been in the pipeline. We’ve thought about how it might impact on us, but at the end of the day we figure it’ll have a positive effect once it’s up and running. The more people you attract to the port area generally, the more people are going to be drawn to us as well.

At first we thought Porto Franco would mean tenants hesitating to come to us, but that hasn’t happened.

Even if it turns out exactly the way it’s been planned, it and Nautica will still be different enough, and there’ll be room for both of them.

You’ve used iBeacon technology in your centres. Has it proven its worth? How have customers taken to it? What further plans do you have in regard to it?

We use it to analyse consumer behaviour in a centre, not directly for the organisation of campaigns. Our aim is to get to know our customers, and that’s something that shopping centres generally find difficult. But iBeacon allows us to analyse consumer behaviour over a much longer period.

As tech goes, it really is cutting edge – it reads people’s movement from their smart phones, giving you an idea of how customers get around in shopping centres, what shops they prefer and how long they spend there. For us it’s an information channel that we use in addition to customer counters on doors. We’ll carry on using it.

It has its advantages and its disadvantages. The number of smart phones changes all the time, so you can’t always measure everything one-for-one.

At Lasnamäe Centrum we’ve learnt that the centre gets a large proportion of loyal customers. If you compare it with other shopping centres, the numbers of loyal customers our centres are getting are much higher. That’s a sign of a local shopping centre. Our clients value the proximity and the convenience. And we have to be an even better and even more convenient centre for the residents of Lasnamäe if we can.

How keen are you to try out new technology in order to improve people’s shopping experience?

As the owner of commercial space we can change the make-up of our tenants. The management of a shopping centre is much more broad-ranging than just entering into rent agreements. A lot happens in cooperation with the tenants – from selecting the stores to working together at a really refined level.

Our priority for the next year is to focus on improving not only the physical appearance of our centres, but also what they have to offer. For the moment we’re mostly working on the visuals. Putting our heads together with our tenants we’re thinking about how to improve the visual side of things in-store, how to make things easier where entrances are concerned and lots more besides. What we want is for the centre to be constantly evolving. That’s something we’re giving a lot of thought to, and that we want our tenants to think about as well.

If you want to look for reasons as to why we’ve changed one tenant or another, one could be that their store concept has become outdated and is no longer attractive to customers, which in turn means the store doesn’t generate enough turnover.

At Lasnamäe Centrum we consciously try out a lot of different goods groups. That’s something we can do there. The majority of the stores we’ve introduced have done well for themselves, but within a couple of years we’ve had to close some precisely because the goods group didn’t suit the centre.

How are rents calculated in Capfield shopping centres – are they fixed or based on the turnover of the store in question? How do you calculate fair rents for tenants?

We keep a close eye on our tenants’ turnovers. In commerce, sales are your primary indicator – what’s important is how much turnover you’re generating per square metre per month or per annum. That way we can assess whether a store’s doing well or not. For different goods groups certain turnovers have emerged that are considered the level to aim for.

Where rent levels are concerned, we go by the market average. We’ve also made decisions which aren’t based purely on generating the maximum rent income, but on other values that a particular tenant offers which raise the overall level of the shopping centre or what it offers visitors. I suspect this approach will become more widespread before long, by which I mean shopping centres selecting tenants based on content, with the rent amount becoming a secondary consideration.

In most cases our rents are fixed, but with around a third we’ve come to agreements on turnover-based rent or additional rent payments if their turnover reaches or exceeds a certain level. The latter is something that’s used most actively in the case of clothing and shoe stores, where it’s easy to keep track of.

How much did the rent prices of stores in Capfield centres rise in 2016, and how much do you plan to raise them by in the coming year?

Average growth throughout our portfolio last year was almost 3%, but the indexing part was close to zero, since in recent years there’s been no THI growth in Estonia or it’s even been in the negative. That’s what the majority of price rises in our rent agreements have been linked to. Our income from rent has risen first and foremost as the result of active management. We’ve changed quite a few tenants in our centres, which has not only improved what we offer in terms of attractive new stores, but also let us increase our rent rates. Also, some of our rent agreements come with a fixed rise in rents.

Overall, we’re still managing to raise rent prices at the moment, but I can see that situation changing in the next few years, with no further growth. We’ve entered into agreements which are more favourable to us in connection with the turnover in tenants at Lasnamäe Centrum. The volume of offers is growing as competition becomes more fierce, which could make rents more affordable from the point of view of merchants, particularly in secondary locations. I doubt there’ll be much change, if any, in the rent levels in large, well-established centres. I think it’s clear that in the future, rent levels will come into line more with specific shopping centres and their locations, which is directly linked to the centres’ popularity. Given the growth in competition we’re likely to see in the coming years, I’d say there’s room on the market for rent levels to be adjusted and differentiated based on location and situation.

In your view, should the shopping centres in Estonia have shorter opening hours?

We’ve been flexible in this regard. In a lot of cases the opening times of shopping centres are dictated by supermarkets. We’ve adjusted the opening hours at Norde Centrum quite a few times. There, for example, we’ve monitored the comings and goings of the ferries at the port and opened the centre an hour earlier. That decision was one we made together with our tenants.

I don’t think opening times is something that the management company can or should impose – it’s up to the tenants to decide. Your input has to come from them, and their input has to come from consumers. If customers aren’t coming to the centre between, say, seven and nine in the evening, I doubt anyone would want to keep their store open during those hours.

It’s constantly being said that the queue of tenants is out the door in shopping centres and that it’s relatively easy to find someone new for commercial space that’s been freed up. What’s the situation like at the moment, considering how many shopping centres there are per head of population in Tallinn?

Right at the moment the queue is indeed out the door. But it’s important to define what the queue really is – of course there are those tenants who are prepared to come to shopping centres, but there are also those who we’d like to get but who aren’t prepared to come to shopping centres. That changes over time though, and differs from one centre to the next.

At the moment, for us, the queue’s a positive one, meaning the tenants who are lined up out the door are the kind that we ourselves want to attract, and it’s on that basis that we’ve made the decisions we’ve made. In half or even the lion’s share of cases it’s us going after tenants. They’re the sort of tenants who shopping centres themselves want, and they don’t stand in any queue.

We look at all of the offers, proposals and ideas we get.

What new stores will be coming to Nautica, and what will we see in the expanded Lasnamäe Centrum?

We’re really happy with the mix of stores we’ve got lined up for Nautica. We’ve been working hard for the last couple of years to boost the proportion of clothing stores in the new centre, and we wanted to find tenants who aren’t represented anywhere else in the city centre. The criterion for being selected was that the range of stores would interest those who come to the city centre and want something different to what’s on offer at Viru Keskus or Stockmann. We saw that there was a lack of choice when it came to kids’, young people’s and so-called fast fashion clothing at affordable and average prices. I should point out that we’ll be opening a number of stores in Nautica that are completely new to the market, too.

With Lasnamäe Centrum our aim’s also been to increase the number of fashion stores. We’ve been talking to some tenants regularly for years and finally reached agreements with them, mostly because the overall level of the centre has changed so much in the last couple of years. But there are still those who aren’t prepared to come to our centre and want to wait until the expansion’s complete, where the volume of new fashion stores opening at the same time will be bigger and the centre’s concept will change even more. Another reason could be that we simply don’t have the space to offer them at the moment. These processes are long-term ones.

Nautica will be partly two-storey, and Lasnamäe Centrum will have two levels as well after renovations.

Do you have plans to open any other shopping centres? I’ve heard you have available land on the outskirts of Tallinn. What plans do you have for that?

We do have land just off Tartu Highway near Peetri which would suit commercial activity, but not necessarily a shopping centre. We’re still working on it as a project. Our aim is to set up a hardware store there along with large-format commercial space for homewares and interior decoration.

We can’t say when this might happen, because it’s interesting times at the moment on the hardware store market. We’re keeping an eye on things and negotiating with potential tenants, including companies outside of Estonia.

What will the shopping centre of the future be like?

It won’t be a shopping centre, but more of a regional centre where you can get everything else you need as well, not just commercial services – banking, health care, free time. That sort of thing. It’ll be the kind of place you can spend time in any time day or night. It’ll be well connected in terms of public transport as well as for people coming by car. It’ll represent a new public space.

I’m convinced we’ll see this in the near future – that everyone will be able to get everything they need from shopping centres. They could even be home to notaries and dentists and the like, and why not even a local government information point or other state services?