Tampere Travel and Service Centre

TAMPERE TRAVEL AND SERVICE CENTRE

ASSESSMENT OF THE FINANCIAL CONDITIONS FOR IMPLEMENTATION AND THE COMMERCIAL CONCEPT

9 October 2015

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Contents 1 Background ...... 3 2 The scope ...... 3 3 The Travel and Service Centre – phasing and scheduling of implementation ...... 4 3.1 Projects in central Tampere ...... 5 3.2 Construction of parking spaces outside the Travel and Service Centre area ..... 11 3.3 Summary ...... 12 4 Assessment of the financial conditions for the project ...... 15 4.1 The property investment market in Tampere ...... 15 4.2 Estimated unit costs and values ...... 16 4.3 Financial assessment ...... 18 5 Market position of the Travel and Service Centre ...... 19 5.1 Commercial centres in Tampere ...... 21 5.2 Accessibility ...... 25 6 The commercial concept of the Travel and Service Centre ...... 27 6.1 Comparison with other projects ...... 29 6.2 Summary ...... 30 7 Demand for housing construction ...... 33 8 Demand for commercial premises ...... 35 8.1 Factors affecting commercial premises construction ...... 35 8.2 Construction of commercial premises ...... 37 8.3 Construction projects in Tampere ...... 38 8.4 The office market ...... 39 8.5 The business premises market ...... 45 8.6 The hotel market ...... 49 9 Summary ...... 52

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1 Background

Parties to the letter of intent signed between the municipalities of the Tampere Central Region and the State regarding land use, housing and traffic, Senate Properties, and VR-Group Ltd have established a joint planning area and project covering the Tampere railway station area, with the goal to prepare an overall plan for the development of the railway station and the railway yard and to set a schedule for its implementation.

In the first phase of the Tampere Travel and Service Centre project in 2013, a traffic and operational concept for the centre was prepared. In the second phase of the project in 2014, a design contest for the Travel and Service Centre area was held to find land use solutions proposals for the traffic and operational concept. The proposal “ReConnecting Tampere” won the contest. The jury recommended that the proposal be used as a basis for further planning in the area. Newsec Valuation Oy was a member of the team that submitted the winning competition proposal.

In addition to the current railway station functions, the Travel and Service Centre area is planned to include a bus station, housing, business and office premises, a hotel, sports premises, and private and public services.

2 The scope

This report aims to clarify the financial implementation requirements of the ReConnecting Tampere proposal from a property business perspective, and to clarify also the commercial concept of the Travel and Service Centre. The purpose of this report is to serve as grounds for further planning, for the master plan, and for any later local detailed plan amendments.

The report consists of two separate entities, namely 1) assessment of the financial conditions for the implementation of the competition proposal, and 2) determining the commercial concept of the competition proposal.

Assessment of the financial conditions for the implementation of the competition proposal

To assess the financial conditions for the implementation of the competition proposal, the total construction volume as well as the construction volume for each function required for the construction of the deck to be profitable was calculated. The construction of parking spaces outside the Travel and Service Centre area has also been considered.

Other large construction projects in Tampere city centre have been considered in the phasing and scheduling of the Travel and Service Centre project. Phasing and scheduling have been inspected regarding the changes that these other projects would impose on the operating environment, and regarding their mutual interdependencies.

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Formulating the commercial concept of the competition proposal

To determine the commercial concept of the competition entry, the market position of the Travel and Service Centre must first be specified in relation to other areas and commercial centres in central Tampere.

This report introduces the city centre business and service structure and the range and location of the offering. In addition, the accessibility and usability of premises included in the contest proposal that serve consumers are described from the consumer viewpoint and from the perspective of the companies renting the premises. The commercial concept of the Travel and Service Centre and the space reservations that are needed for its implementation are presented based on the current market situation in central Tampere.

3 The Travel and Service Centre – phasing and scheduling of implementation

The total building stock in the centre of Tampere amounts to around 3.41 million m², including 1.51 million m² of housing, 1.34 million m² of office space, 0.43 million m² of store premises, and 0.13 million m² of industrial premises. The new construction planned in the Travel and Service Centre area is around 5% of this total.

The Tampere Travel and Service Centre will be a new kind of multifunctional centre for travel and services, integrating public transport services into the city centre. In addition to transport station functions, the planned construction in the Travel and Service Centre area includes business premises, offices, and a hotel.

In analysing the phasing and scheduling of the Travel and Service Centre project, other large construction projects in Tampere city centre have also been considered. The phasing and scheduling have been inspected in relation to these changes to the operating environment, and with regard to their mutual interdependencies. Each of the large construction projects is introduced separately.

Due to the various remaining open questions relating to the implementation and the implementation schedule, the phasing and scheduling of the Travel and Service Centre project are rough estimates only. A more detailed assessment can be made once there has been verification of e.g. planning, the cost and schedule of deck construction, and the schedule for the modification work required on the railway yard before deck construction can begin.

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3.1 Projects in central Tampere

The Deck and the Arena

In early summer 2015, the city began a public procurement process on the implementation of the Deck and the Arena. Negotiations with the possible constructors will be held during autumn 2015. Once the constructors have been selected, an outline for the project schedule will be prepared.

The construction of the Deck and the multifunctional arena will make the centre of Tampere more compact by functionally connecting it with the Tulli district, which is currently separated from the city centre by the railway tracks. Based on our estimate, the construction will support the Travel and Service Centre project by increasing the city centre population and demand in the area. The building of the Deck and the multifunctional arena will therefore support the implementation of the Travel and Service Centre.

According to our estimate, the postponement of construction of the Deck and the multifunctional arena would increase uncertainty among various interest groups about the implementation of the Travel and Service Centre.

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Ratina Shopping Centre

Sponda has decided to begin work on the Ratina Shopping Centre project. The project will create 53,000 m² of business and service premises and around 1,250 parking spaces in Ratina. The aim is to attract over 150 stores to the shopping centre. Based on the owner’s announcement, Ratina will include two grocery stores, namely a K- Supermarket and a Lidl supermarket; specialised fashion, wellbeing, interior design, and leisure outlets; and restaurants and cafés. Tullinkulman Työterveys will take over the office premises in the shopping centre. When complete in the spring of 2018, the shopping centre will strengthen the focus of the business premises on the eastern side of the rapids and increase customer volumes in central Tampere.

Ratina Shopping Centre (Sponda)

We estimate that the completion of Ratina Shopping Centre will reduce the demand for business premises for specialised stores, especially at the western end of Hämeenkatu Street, in Ideapark, and in the short term also in Koskikeskus Shopping Centre. In addition, the office space planned for the shopping centre is expected to partly reduce the demand for office space.

Ratina Shopping Centre is at the edge of the city centre, and so is some distance from the city centre’s main pedestrian routes. The walking distance from Hämeenkatu Street restricts somewhat the volume of customers arriving from the city centre direction. For this reason, the shopping centre is expected to best serve residents of the nearby areas, e.g. the Ratinanranta district, and customers arriving by car.

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Completion of Rantatunneli tunnel

The estimated completion date of the Rantatunneli tunnel is by summer 2017. The Rantatunneli tunnel will enhance the functionality of vehicle traffic and is expected to reduce the east-west traffic flow through the city centre. The construction of the Rantatunneli tunnel facilitates the extension of the city centre towards the shores of Lake Näsijärvi, and also facilitates planning of Ranta-Tampella as a residential district.

The completion of the Rantatunneli tunnel will make the inner city more compact, thereby making the city centre more attractive. The construction of Ranta-Tampella will, at the time of implementation, reduce the demand for residential building rights in the Travel and Service Centre area. On the other hand, the Rantatunneli tunnel will reduce traffic volumes in the city centre, and it will improve northbound road connections from the Travel and Service Centre.

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Construction of Ratapihankatu Street and its new office blocks The construction of Ratapihankatu Street and the new office blocks along it will begin within the coming years. The construction of the Rasti block in the district’s southwestern corner is expected to start soon. The completion of the Rantatunneli tunnel will improve traffic connections in the area. The Tammela district is on the eastern side of the area.

Construction in the area will increase the compactness of the northern side of the city centre area, and should make the city centre more attractive. The building of apartment blocks will increase the demand for business premises, thus facilitating speedier construction of the Travel and Service Centre. The office premises to be built in the area will partly reduce the overall demand for office premises, while also promoting the image of the area as an office district. Similarly, housing construction in the area will partly reduce the demand for housing construction during the implementation period.

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Additional construction in Tulli and the Campus area

Construction of the Tulli district and the Campus area is underway. Located at a transport hub, the area has excellent accessibility and can be further developed as a business and residential hub that supports the epicentre. The area contains several of Tampere’s most important buildings, including Tampere Hall, Tullikamari, and the University of Tampere. The Tammela and Kaleva districts are in the north and east of the area, respectively.

Below is presented Tulli district master plan area in drafting phase

Additional construction in the Tulli district and the Campus area will increase the number of jobs and thus also the number of potential service users in the city centre. Office space construction will reduce the demand for older office spaces in particular. The increase in the number of jobs will somewhat increase the demand for new housing. Additional construction will increase the volume of commuter traffic and the demand for the services provided by the Travel and Service Centre.

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Construction of the tramway

The tramway project progressed in July 2015, with the selection by the City of Tampere of a partner to build the tramway infrastructure. The contract was awarded to the TRALLI consortium, which consists of VR Track Ltd, YIT Industry Ltd, Pöyry Finland Ltd, and (through an alliance contract) Ratatek Ltd. The final decision on the construction of the tramway will be made in October 2016.

The Travel and Service Centre will be the public transport hub of the tramway. The construction of the tramway will increase the visitor volume in the Travel and Service Centre area, and will in our view lead to increased use of public transport. A judicious location of the tram stops next to the Travel and Service Centre will improve the functionality of the centre and should increase its rate of use.

Converting Hämeenkatu Street to a street reserved for pedestrians and public transport

Establishing a pedestrian zone will change the profile of the area between the Travel and Service Centre and Hämeentie Bridge, making it more of a commercial centre. Good examples from within Finland include Aleksanterinkatu Street in Helsinki, the Rotuaari pedestrian zone in Oulu, and Kauppakatu Street in Jyväskylä. Converting Hämeenkatu Street to a street reserved for pedestrians and public transport will in our view shift the focus towards the Travel and Service Centre, thereby making it more attractive.

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3.2 Construction of parking spaces outside the Travel and Service Centre area

In terms of parking, SITO has assessed four theoretical scenarios (S-XL) based on the volume of infill development. The assessment includes the estimated number of parking spaces that will be needed, taking into account the number of parking spaces to be removed from use. Due to the cost of deck construction, infill development is likely to be implemented using one of the most extensive options, i.e. the L or the XL scenario.

The new norm to be applied to parking in the Travel and Service Centre area and to infill development in general could be one parking space per 150 gross m². In infill development, most of the parking could be arranged using centralised parking facilities. When the infill development is implemented based on the L or XL scenario, a shared parking system (business premises vs. housing) can be used at the Tammela parking facility under the market place, and in the Tulli parking facility. Based on a rough estimate, shared parking will facilitate a 10-30% increase in the number of customer parking spaces.

The extensive infill development in the Tammela district requires the construction of the Tammela parking facility that has been planned underneath the market place. The significance of street parking will also be significantly reduced, and will be used in Tammela mainly for short-term parking. Resident parking will be moved from along the streets to new parking facilities, which may in certain blocks increase walking distances from the parking spaces.

In development projects that offer the opportunity to locate parking spaces in centralised facilities, an attempt will be made, with the city’s guidance, to reduce ground-level parking on the plots. The recommended reduction in street parking is 20– 50%. Completely eliminating street parking could cause parking problems in certain areas.

Extensive infill development in the Travel and Service Centre area requires that the Tulli parking facility be built, which will also replace the P-Tulli and P-Asema parking facilities, both of which will be closed. Most of the parking in the Travel and Service Centre area would be directed to the Tulli parking facility. For the construction of the parking facility to be profitable, resident parking is also needed and some of the demand on the Tammela side should be directed to the Tulli parking facility.

Centralising parking in the parking facility underneath the Travel and Service Centre facilitates optimal parking dimensioning and reduces construction costs. Indicating reserved parking spaces for apartments that are for sale enhances their saleability, thus facilitating a higher sale price for the parking spaces and subsequently reducing the cost-impact of their construction. Shared parking can be used to increase the rate of use of the parking spaces, to reduce their number, and thereby to reduce the cost of building parking areas.

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3.3 Summary

Construction in the surrounding area also increases demand in the Travel and Service Centre area. The construction of the Travel and Service Centre and its business premises can meet this increased demand. To be profitable, office space construction must be timed so that the supply does not exceed demand. Oversupply of office space in the Travel and Service Centre area would reduce the rental rate of office space, which would make the office construction unprofitable for investors. The City can even out economic fluctuations by transferring some of its own functions and public services to the Travel and Service Centre area if necessary. We estimate that the confirmed implementation of the Travel and Service Centre would reduce demand for other city centre projects.

If the construction of the Travel and Service Centre begins by 2025, of the currently known projects the Ratina Shopping Centre could somewhat reduce the demand for business premises. We expect the demand for city centre office space to increase, and therefore the construction of Ratapihankatu Street and the neighbouring areas, the Tulli district, and the Campus area will direct office space demand to the area, thereby supporting the implementation of the Travel and Service Centre. The demand for office space is expected to be sufficient for the proposed volume of new office space in the Travel and Service Centre. Correspondingly, the demand for older office space is expected to reduce. As the population of Tampere increases, the need for housing construction will remain constant. The construction of the Rantatunneli tunnel, Ratapihankatu Street and the neighbouring area, the Tulli district, and the Campus area will partly lower the demand during their implementation. On the other hand, together with the infill development in Tammela, they will increase the demand for business premises, offices, and the Travel and Service Centre premises.

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The map shows the location of the Travel and Service Centre and the other projects.

The location of the Travel and Service Centre in the centre of Tampere at the hub of railway passenger flows, and in future the hub of tram and bus traffic, reduces the risk relating to the implementation of the project. This risk is linked to the construction costs of the Deck and parking, and the timing of the construction. The risk can be minimised by beginning the project with housing construction along Ratapihankatu Street on the area’s northern side.

As the resident population increases, the working-age population will raise the average purchasing power in the area and the demand for office space and business premises. The structural change affecting the trade sector creates uncertainty regarding demand for business premises. The general economic situation in Finland and the subsequent slow development of purchasing power have created problems for retailers in recent years. The impact of e-commerce is not yet fully understood, which reduces the interest of operators in the trade sector to commit to the currently planned projects.

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Starting the project with housing construction is the safest option considering the current economic situation. Getting construction work underway will create trust in the implementation of the project.

Care must be taken to balance supply and demand so as to maintain the price level and the interest of the construction firms. Dividing the projects between two or three operators based e.g. on the block areas would support competition and the construction of the area. Based on the information provided by the City, the necessary contracts have been signed to facilitate the building of Ratapihankatu Street on the area’s northern side. Based on the undergoing planning process, beginning construction on the northern side of the area is therefore logical in terms of scheduling. This option also has the lowest risks relating to construction of the deck. Building the shopping centre, which would be the commercial anchor of the Travel and Service Centre, depends on the schedule for building the deck. A rough estimate is that the shopping centre will be constructed around 2027 or 2028.

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4 Assessment of the financial conditions for the project

The interest of foreign investors in Finland focuses on the Helsinki Metropolitan Area and Tampere. Recent years have seen an increased investor interest in projects involving station areas in particular. Due to the moderate risks and expectations of higher returns, Tampere continues to be second only to the Helsinki Metropolitan Area in attractiveness to investors. However, the strict investment criteria keep actual transaction volumes low. In addition to major property sales, several projects that are worth tens of millions of euros have been completed or are currently underway in the city. In terms of the property market, projects in Tampere are attractive to investors.

4.1 The property investment market in Tampere

One of the most significant office transactions in Tampere was the sale of the Tulli Business Park by a German property fund administered by UBS to Sponda Plc in 2014. In 2015, Senate Properties sold the Finnish government office building known as Hippostalo to the Tampere Student Housing Foundation (TOAS). The purchase price was around 12.1 million euros. The sold property includes 19,000 m2 of office space and around 10,000 m2 of unused building rights.

Another significant property transaction was completed in June 2015 when the Sandvik Pension Fund sold the Koy Koskitammi, a city-centre landmark building on the banks of the Tammerkoski rapids, to a fund administered by Pohjola Property Management Ltd. The purchase price was not made public, but is expected to have been slightly short of 20 million euros. The area of the office building is around 11,000 m². The known tenants include Omasairaala and five municipal organisations (The Council of Tampere Region, Tampere Region Economic Development Agency Tredea, Tampere Regional Solid Waste Management Ltd, the Baltic Institute of Finland, and the Joint Authority of Tampere Central Region).

The City of Tampere aims to promote the activity of the local property market. At the end of autumn 2014, the City Board decided on the further measures to be taken concerning the city's fixed assets. The list of assets includes dozens of properties that will be sold, properties that will be developed in order to be sold, and construction projects. The properties to be sold include residential buildings, former libraries, schools, daycare centres, and at least one healthcare centre.

The Front Yard project of the Tampere University Hospital began in August 2015. During the project, three new buildings and a parking facility will be built on the front yard of the hospital. The total cost of the project is relatively high, around 200 million euros. The buildings are due for completion between 2017 and 2019.

The extension constructed by University Properties of Finland Ltd in the Kauppi district will be completed in 2016. The University of Tampere will rent 21,000 m2 of the property, on a 25-year tenancy contract. This will free a significant amount of operating

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premises in the FinnMedi area that are currently used by the University. The total value of the investment is over 67 million euros.

The final phase of the Yliopistonrinne office complex, which is being built by Technopolis, will be completed in May 2016. The combined area of the extension is 11,900 m², which will increase the total area of the office complex to around 30,000 m². The value of the investment is 39 million euros.

The Campus Arena, which was built in Hervanta by University Properties of Finland Ltd, was completed in autumn 2015. The building is on the campus of the Tampere University of Technology. Its area is 16,000 m², and its estimated cost was around 30 million euros.

The Prisma centre in Kaleva will be extended. Based on the plan, which is currently pending, it will be turned into a business centre of up to 65,000 m² in area. Together with Ratina Shopping Centre, it is among the largest business construction projects in the whole region.

The construction of Ratina Shopping Centre is currently underway, and according to the owner is due for completion in 2018.

4.2 Estimated unit costs and values

The pricing of building rights is based on the estimated value of market-based building rights. The estimated price level of residential, business, and office buildings is based on completed sale prices, and the value is calculated using the income approach method. The evaluation is based on public registers and on experimental information about the local market collected by Newsec.

The principal method of evaluating the building rights of business and office premises is the trade value method. Pricing of the building rights of residential apartment blocks is based on the trade value and price ratio methods. The Cities of Helsinki and Espoo have sold building rights to residential apartment blocks through bidding competitions aimed at construction firms. The value of building rights has been tied to the future debt-free price per square metre of the premises. On Jätkäsaari Island, which is a seaside district of Helsinki, the highest price received by the City of Helsinki based on the winning offer on the building rights will be around 34% of the average debt-free price per square metre of the apartments to be built there. In Matinkylä in Espoo, the corresponding offer received by the City of Espoo in early 2015 was 22% of the average debt-free price per square metre.

In the trade value method, the valuation of the building rights of the plot is based on completed, comparable property sales of unbuilt plots in suitable comparison areas. The information on completed property sales was obtained from the official purchase price register, which is maintained by the National Land Survey of Finland.

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The income approach method gives an indication of the value by converting future cash flows into current capital value. This method evaluates the income that the assets will generate during the holding period, and indicates the value through the recapitalisation process. Recapitalisation involves conversion of the income into capital using an appropriate discounting rate. The income value has been calculated based on income capitalisation by assessing the net rent and the yield requirement. For the latter, all risks relating to recapitalisation have been taken into account.

Residential apartment block projects According to our estimate, the value of building rights for residential buildings in the city centre area is between €700 and €1,000 / gross m². The price depends on e.g. the cost of the parking solution. On the Ratina shore, for example, the estimated price level of the building rights is around €800 / gross m² once all construction-related obligations have been taken into account.

The average apartment price level in the Ratina area in central Tampere is €4,300- €4,460/net floor m². In Tampella, the average price level is €4,300/net floor m². The estimated apartment price level of the project is around €4,500 / net floor m², of which the value of the building rights is €900-1,100/net floor m² (20-24% of the average debt- free price per square metre). The impacts of structural parking on the building rights (reducing impact) and on the debt-free price of apartments (increasing impact) have been taken into account in calculating the prices. When the impacts of structural parking are considered, the estimated variation in the value of the residential building rights in the entire area is between €700-€900 / gross m².

According to our estimate, the net rental rate of the city centre residential apartments that are to be built is €10-€14/m²/month. Due to the increased interest and demand of housing funds, the yield requirement level of new buildings is around 4.5-5.5%. The average apartment price level in the Ratina area in the centre of Tampere has been €4,300-€4,460/net floor m². In Tampella, the average price level has been €4,300/net floor m². The apartment price level of the new residential buildings is estimated at around €4,000-€5,000/net floor m². The calculated construction cost of the residential building mass is around €440 million excluding the land value, and €490 million when the land value is included.

Office projects

According to our estimate, the value of the building rights for city centre office buildings is €400-€500/gross m².

The price depends on e.g. the cost of the parking solution. The estimate is based on the completed sales of office building rights in the Tulli district. In 2007, NCC purchased office building rights for €425 / gross m² and €430/ gross m². In 2008, Technopolis Plc purchased office building rights for €480 / gross m². The reducing impact of structural parking has been taken into account in estimating the prices. The estimated variation in the value of office building rights for the entire area is €400-€500 gross m².

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According to our estimate, the net rental rate of the city centre office buildings to be built is €14-€16/m²/month. Due to the increased interest and demand, the yield requirement level of new buildings is around 6.4-7.4%. The estimated price level of new office buildings is around €3,000-€3,500/m². The estimated level of construction costs is €1,500-€1,700/m². According to our estimate, the demand-based volume of business premises in the area is 30,000 m². The calculated construction cost of the office building mass is around €60 million excluding the land value, and €80 million when the value of the land is included.

Business premises projects

According to our estimate, the value of the building rights for city centre business premises is around €500-€700/gross m². The high end of this estimate is the price of building rights for grocery stores and along Hämeenkatu Street.

The value of the building rights is based on the increased demand for business premises building rights in the city centre area, on discussions with the City of Tampere, and partly on the 2008 bidding competition for the Ratina area that led to the purchase by Sponda Plc on 12 May 2008 of the building rights for Ratina Shopping Centre for the price of €349/gross m². The bidding competition’s highest offer was €548/gross m², made jointly by Citycon Plc and Skanska. In estimating the price, the reduced impact of structural parking has been taken into account. The estimated variation in the value of the business premises building rights is €500-€600 / gross m².

According to our estimate, the net rental rate of city centre business premises to be built is €20-€75/m²/month. Due to the increased interest and demand, the yield requirement level of new buildings is around 5.5-6.5%. The estimated price level of new business premises is around €3,500-€4,500/m². The estimated level of construction costs is €1,800-€2,100/m². According to our estimate, the demand-based volume of business premises in the area is 50,000 m². The calculated construction cost of the business building mass is around €130 million excluding the land value, and €200 million when the land value is included.

4.3 Financial assessment

The financial assessment excludes the cost of deck construction and the modifications that are needed to the railway yard before the building of the deck can begin. Based on information received from the City of Tampere, the construction cost of the deck will be around €3,000/m2.

The following Table (next page) shows the calculated value of the land, and the combined value of the buildings and the land as a final product, and the estimated construction cost excluding the land value. The calculations are theoretical and take no account of the time factor, of the risk relating to the implementation of the area, or of the ownership situation in the area, or of the possibly greater than normal cost impact of structural parking. The assessment takes account of the profit margin of the

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developer, which is estimated to be slightly below 10% for residential buildings and over 10% for commercial premises buildings. Construction Permitted building volume Value of the land Value of the buildings and the costs €/gross gross floor m2 €/gross floor m2 land €/gross floor m2 floor m2 Residential building right 120 000 800 4 400 2 900 Retail building right 50 000 550 4 000 2 000 Office building right 30 000 450 3 100 1 700 Total 200 000 1 800 11 500 6 600 The construction costs and property values have been calculated for the entire area based on the estimated unit prices of land, buildings, and building rights in the area.

The following Table shows the estimated value of the buildings upon completion of the area, the estimated construction cost including the value of the land, and the difference between these two estimates. The calculations are theoretical and take no account of the time factor, of the risk relating to the implementation of the area, or of the ownership situation in the area, or of the possibly greater than normal cost impact of structural parking.

Permitted building volume Market value Construction costs and land Difference gross floor m2 € € € Residential building right 120 000 490 000 000 430 000 000 50 000 000 Retail building right 50 000 200 000 000 130 000 000 70 000 000 Office building right 30 000 80 000 000 60 000 000 20 000 000 Total 200 000 770 000 000 630 000 000 140 000 000 Based on this theoretical estimate, the construction costs of the deck may be at least partly covered by the increase in property value.

5 Market position of the Travel and Service Centre

The centre of Tampere is the centre of the Tampere region. In terms of business operations, the focus of the area has shifted from the industrial and production sectors to research and business services. The number of jobs in the area over the past 20 years has remained stagnant.

The epicentre of Tampere is by far the greatest job cluster in the Tampere Central Region and the Tampere Region. Since the beginning of the 21st century, two-thirds of the new jobs created have been in the city centre. The tramway will connect the largest of the other job clusters, namely the Kauppi campus and Hervanta. The number of jobs in the Kauppi campus area is expected to increase significantly in the coming years.

The area is being developed as a diverse job area. Commuter traffic is being developed to make it more ecologically sustainable, and the user-friendliness of customer and other parking will be improved. In addition, the City aims to ensure the quality of housing in the city centre that is becoming more condensed.

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A SWOT analysis of the city centre area

Strengths Weaknesses

 Location: the region’s commercial centre  Compact construction  Lack of a pedestrian zone in the  Investor interest focuses on the hubs city centre of efficient public transport  No clear commercial centre at  Good connections present  Location of the University of Tampere  The new projects will shift the focus in the city centre of the commercial centre  Excellent labour supply

Opportunities Threats  Loss of jobs in the trade and service sectors over the past 20  City centre development projects years  New rail connections  Increased cost of commercial  The unique location creates an premises opportunity to establish a successful  Increasing vacancy rate of multifunctional city centre commercial premises  Improving the station area  Unpredictable changes in trade  Centralisation of services patterns and lack of commitment  The usage of much of the available among entrepreneurs space can be changed as required  Insufficient parking space  Unexpectedly high investment costs in the project area

There will be no competition for station services between the Travel and Service Centre and other commercial service providers. Station services will support other commercial services, which will compete to some extent with other service providers in the surrounding area. The central location amid pedestrian flows improves the competition position. The accessibility and usability of the consumer-oriented premises must be good from the viewpoint of customers and of the companies renting the premises. Similarly, the supply of accessible parking spaces must be sufficient.

The grocery store in the Travel and Service Centre will supplement and also to some extent compete with other nearby grocery stores. Specialised stores will compete with other similarly specialised stores nearby. The construction of the Travel and Service Centre will increase competition for rented business premises.

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The users of the Travel and Service Centre will include the centre’s own staff and the users of its transport services, city centre shoppers and other service users, and city residents. User needs vary with the user group.

For those who come to the centre for shopping and other services, the main considerations include the location of entrances, good, visible and logical passageways, sufficient and accessible parking spaces, and needs and expectations relating to services provided for various age groups. These different age groups include young people, the working-age population (including families with children), and pensioners.

5.1 Commercial centres in Tampere

The local commercial centres outside the centre of Tampere include Lielahti, Hervanta, Koilliskeskus, and Kaleva. On the map below, these commercial centres are shown in red. In addition to the local centres, the cluster of stores with a high space requirement in Lahdesjärvi can be seen on the map.

The functions of properties according to the population register in Tampere. Source: Population Register Centre & Newsec

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The city centre area

The commercial centre of Tampere is Hämeenkatu Street, and especially the section between Hämeensilta Bridge and the railway station. The estimated number of business locations in the epicentre of Tampere is around 1,500, of which 40% are retail store premises (Santasalo 2014). It is expected that shopping and the use of other services in the city centre will increase, which is expected to favour the commercial position of the Travel and Service Centre.

Source: Santalasalo

Ratina

Ratina has been introduced earlier in this report. Sponda has decided to begin work on the Ratina Shopping Centre project. The project will create 53,000 m² of business and service premises and around 1,250 parking spaces in Ratina. The aim is to attract over 150 stores to the shopping centre. Based on the owner’s announcement, Ratina will include at least two grocery stores, namely a K-Supermarket and a Lidl supermarket; specialised fashion, wellbeing, interior design, and leisure outlets; and restaurants and cafés. Tullinkulman Työterveys will take over the office premises in the shopping centre. When complete in the spring of 2018, the shopping centre will strengthen the focus of the business premises on the eastern side of the rapids and increase customer volumes in central Tampere.

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Ratina Shopping Centre is at the edge of the city centre, and so it is some distance from the city centre’s main pedestrian routes. The walking distance from Hämeenkatu Street restricts somewhat the volume of customers arriving from the city centre direction. For this reason, the shopping centre is expected to best serve residents of the nearby areas, e.g. the Ratinanranta district, and customers arriving by car.

DUO Shopping Centre

DUO Shopping Centre is located on the University of Tampere campus in Hervanta. Therefore, it does not, due to its relative remoteness, yet compete directly with the Travel and Service Centre. The competition between the two will increase once the tramway is completed, which will connect the areas. DUO Shopping Centre is not expected to be a significant competitor with the Travel and Service Centre once the latter has been completed.

The anchor stores at DUO include three strong grocery stores. The annual visitor volume 4.4 million, and the centre has 380 parking spaces. The volume of rentable business premises is 11,733 m2, of which 56% is rented out to grocery stores.

Koskikeskus

Koskikeskus is a shopping centre near the city centre, along Hatanpään valtatie Road. It was opened in 1988 and was partly renovated between 2005 and 2006. A more comprehensive renovation project began in the spring of 2011 and was completed in 2012. The cost of the latter renovation was around 38 million euros. In terms of location, Koskikeskus competes with the Travel and Service Centre but is expected to become “the older shopping centre” in the city centre area despite the recent renovations. The significant location of the Travel and Service Centre in the epicentre and the future public transport projects will strengthen the position of the Travel and Service Centre. A higher number of people can be expected to use the commercial services of the Travel and Service Centre.

Koskikeskus has 425 parking spaces and an annual visiting volume of 5.69 million people. The anchor tenants include Intersport, Stadium, and Lindex. 20% of the stores are beauty and health stores and 20% are leisure stores. Clothing accounts for 32% of the stores. The shopping centre has a total of 28,200 m² of rentable business premises.

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Lielahti

Lielahti Centre is a shopping centre that opened in the western Lielahti district in 2014. The Lielahti Centre’s distinctive feature is that it contains both municipal and commercial services. The City services include Tampere city library, a healthcare centre, a dental care centre, a maternity and child welfare clinic, and a service and day centre for senior citizens. Like the DUO Shopping Centre, Lielahti Centre does not compete with the Travel and Service Centre in terms of location.

A total of 0.8 million people visited Lielahti Centre in 2014 after it was opened in April of the same year. The centre has parking for 250 cars. In addition to the City of Tampere services, the anchor stores include H&M, Seppälä, Lindex, and Dressmann. The centre has a total of 10,485 m² of rental space. The main sectors at the centre are clothing and public services, each of which accounts for around 35% of the rental area.

Lielahti is a regionally important location for grocery stores and stores with an extensive space requirement, and it also has branches of most of Finland’s largest chains. Apart from the Lielahti Centre, most of the stores in Lielahti operate as stand- alone units in separate buildings. Of these stores, the main competitors to the Travel and Service Centre are the large hypermarkets.

Tullintori

Tullintori Shopping Centre is located in the Tulli district in the city centre. At present, the shopping centre includes access to Solo Sokos Hotel Torni Tampere, opened in 2014, and to Original Sokos Hotel Villa. The shopping centre was constructed in 1990. An extensive renovation project was carried out from summer of 2012 until December 2013, during which the centre’s structures and the office premises were upgraded. The renovation of the shopping centre continued in 2014. Due to its location, Tullintori competes with the Travel and Service Centre as a commercial unit. However, the Travel and Service Centre has a better micro-scale location in relation to the city centre.

The business premises of the shopping centre reopened in April 2014 after the renovations. The customer flow for the remainder of that year was 2.1 million. The shopping centre has 627 parking spaces. The anchor stores renting the premises include City Tokmanni and K-market. The shopping centre includes a total of 7,460 m² of rental business premises, including clothing stores (23%), other commercial service providers (21%), grocery stores (16%), and cafés and restaurants (12%).

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5.2 Accessibility

The project area is located in the city centre area, with excellent accessibility. The population of central Tampere is around 66,100. Areas within a 15-minute drive from the project area are shown in yellow.

Figure. Accessibility by car: 5-, 10- and 15-minute driving distance

Another significant accessibility factor is that the existing city centre residents can access the project area on foot. The map below illustrates accessibility to the area on foot (5-, 10-, and 15-minute walking distance). Due to its central location, the distance between the project area and the city centre of Tampere is 5-10 minutes on foot. The suggested conversion of Hämeenkatu Street to a street reserved for pedestrian and public transport will further improve pedestrian accessibility.

Figure. Accessibility on foot. 5 min, 10 min, and 15 min walking distance.

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The development of public transport will be an important factor in the Tampere region in the coming years. For example, the infrastructure of the planned tramway will connect areas by means of public transport, which will enhance accessibility. Based on a survey completed by the City of Tampere, the tramway and the infill development that will support it will connect the largest and densest residential and job areas in the Tampere Region and increase the population within the public transport zone. In total, tram traffic will increase the annual volume of public transport passengers by 4.4 million. The tramway will improve the accessibility of the epicentre of Tampere, Hervanta, and the Central Hospital within the city.

The proposed route of the Tampere tramway (2014).

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6 The commercial concept of the Travel and Service Centre

The location of the Travel and Service Centre at the end of Hämeenkatu Street within the commercial centre will improve the demand for business premises within the project area. The nearby businesses include the Stockmann department store and the new Solo Sokos Hotelli Torni.

For the commercial concept of the Travel and Service Centre to be workable, the organisation of parking is vital. The location of parking in the parking facility underneath the Travel and Service Centre will facilitate direct access to the parking facility from apartments, business premises, and offices. From the viewpoint of the Travel and Service Centre, access to the parking facility should be as smooth, short-distance, and logical as possible, especially from the grocery store premises. In addition, connectivity between the parking facility and the various premises must allow for control, supervision, and restriction in order to ensure user safety and controlled access. Furthermore, the organisation of parking should not pose an unreasonable financial burden to the business premises.

A successful commercial concept requires that in addition to parking, service and maintenance traffic must also be organised cost-effectively, without disturbance to other traffic and customers. Where required, service and maintenance traffic routes can be built in connection to the parking facilities. However, in this case, the access routes must not be open to customers.

EP-Logistics has estimated the volume of people flows in the Travel and Service Centre. The estimate was based on an area drawing, layout drawings of the various floors, staircases, levels that each lift group serves, passenger flows (trains, buses, trams, connection traffic), customer flows on different floors and between the floors (based on e.g. the annual visitor target, estimated store turnover, gross floor area, number of parking spaces, and traffic volumes), the modal split of the Travel and Service Centre visitors (car, train, bus, tram, walking and cycling), data relating to the level-changing equipment (previous projects/suppliers of EP-Logistics).

The visitor groups considered in the people flow assessment include train passengers, residents, shopping centre customers, hotel staff and customers, and office staff. In addition, the arriving/departing people flows have been divided based on the means of transport: trams, cars, walking, cycling, and buses. The following Figure shows the distribution of people flows.

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Based on the assessment by EP-Logistics, the flow of people through the Travel and Service Centre would be distributed as shown in the Figure during the peak hour, and would be around 10,500 people per hour on average. The estimated volume of people would increase by around 20% above the current level.

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6.1 Comparison with other projects

As part of the assessment of the Travel and Service Centre concept, a comparison was made to other similar travel and service centre concepts.

Berlin Central Station

Of foreign concepts, the Berlin Central Station is partly comparable to the Tampere Travel and Service Centre. The Berlin Central Station is a new project implemented within the city structure. In the solution, trains travel through the building mass on several levels. There is easy access between the different levels.

In terms of business premises, stores facilitating quick shopping, cafés, and fast food restaurants are the most popular. The customer flows of specialised stores could be higher than they currently are. For example, the sales levels in fashion shops at Berlin Central Station are low.

The Tripla project in Pasila

Of the Finnish projects considered, the Tripla project that will be implemented in Pasila, Helsinki, can be compared to the Tampere Travel and Service Centre. The five-storey Tripla will contain a commercial centre, office space, and a hotel. Tripla will include apartments in addition to commercial premises.

The planned functions include entertainment and wellness services on the fifth floor, a “Little Manhattan” on the fourth floor that will include the railway station, concepts suited to “quick shoppers” and other commercial services, specialised fashion stores and restaurants on the third floor, and the central square or shopping street with specialised stores on the second floor, and on the first floor a cluster of grocery stores and an indoor market-type food market.

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Figure. The Tripla Project. Source: YIT

A similar concept to Tripla is already in use at several Travel and Service Centres in Finland, including DIXI in Tikkurila and Sello in Leppävaara, Espoo.

6.2 Summary

Travel and Service Centre

The basic function of the Travel and Service Centre is to provide railway and bus station services. Functions that support these station services and serve visitors include café and restaurant services and small stores facilitating quick shopping, such as kiosks, pocket shops, and accessories stores.

Shopping centre

The shopping centre that will be integrated with the Travel and Service Centre and will make the best possible use of the customer flows will serve as the motor for the centre’s commercial activity. The location of the centre next to Hämeenkatu and Rautatienkatu Streets is vital for the success of the shopping centre. The location makes the shopping centre vertically accessible from Hämeenkatu Street, the railway platforms, and the deck. The main entrance must be located at street level, at the end of Hämeenkatu Street. The shopping centre will naturally link the various levels of the complex, and will direct the passage of people from level to level. A well-working connection to the platforms and to public transport stops will create the pedestrian flows needed by the stores, and it will serve both the transport functions of the Travel and Service Centre and transverse pedestrian and bicycle traffic on both sides of the railway tracks.

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To ensure smooth commercial operations at the shopping centre, the centre must include 2-3 grocery stores that will serve as anchor operators. In addition, specialised stores and services will be located in the shopping centre, based on its chosen concept and dimensioning. The excellent location and the expected increase in the significance of efficient public transport connections will create the potential to make the shopping centre the Tampere region’s leading centre of trade and services.

We have identified two main implementation options concerning total dimensioning:

A) A shopping centre based on daily and weekly visits.

The dimensioning would be around 15,000-25,000 m², of which retail would account for around half while the rest would be reserved for services. The shopping centre would serve as a part of the Travel and Service Centre, with the main focus on grocery stores, ease of daily errands, cafés and restaurants, and services. In this option, specialised stores such as fashion stores would have a relatively small role.

B) A shopping centre based on shopping and entertainment.

The dimensioning would be around 35,000-50,000 m², of which retail would account for a good half, and the rest would be reserved for services, leisure activities, and entertainment. A wide offering of specialised and clothing stores, combined with a diverse selection of cafés, restaurants and services, would attract many visitors. The shopping centre would bring together a wide range of city centre-oriented stores and services, and would serve as the leading shopping and meeting place in Tampere throughout the whole week. In addition to grocery stores, the potential anchor operators would include department stores, large sports and leisure stores, electronics stores, and the major fashion brands.

As changes and challenges relating to future trade patterns are difficult to predict, the flexibility of the plans must be ensured in the development of the Travel and Service Centre and the shopping centre. This will allow for the development of commercial concepts to be taken into account already in the implementation phase. Concrete examples of the changes that are underway include difficulties faced by department stores, the development of e-commerce, and the return to city centres of stores with an extensive space requirement. Consumer behaviour has also been undergoing a major change: instead of goods, consumption has shifted increasingly towards services, experiences, and entertainment, and this change is reflected in the changing needs of premises.

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The location of the project area creates credible potential for implementation of the commercial concept, as the location is excellent from the perspective of business competition. In our view, the estimated requirement for additional business premises in the city centre of Tampere does not significantly restrict the volume of the shopping centre; the main functional consideration should be the optimal concept and volume. The shopping centre is likely to reduce the demand for business premises in the impact area’s secondary commercial facilities. The more extensive implementation option, focusing as it does on shopping and entertainment, would significantly change the focus of trade in the epicentre area.

Offices

We estimate that there will be demand for office space in the Travel and Service Centre to be used as office hubs (e.g. Regus). The provision of hourly-charged on- demand office premises is a growing global trend that is especially popular among global companies.

Hotel

We estimate that the demand-based need for hotel premises in the project area will be in the region of 10,000–15,000 m². In addition to local operators, the estimated demand for hotel premises is added to by foreign hotel operators that are considering entering the Finnish market. Hotels will rely on the Arena, Travel and Service Centre functions, shops, and the central location.

Other private and public services

As new services, there will be demand in the area for sports and other leisure services. Due to the high construction costs and the operators’ limited ability to pay rent, the central location is not very well suited to these types of business.

The commitment of the City of Tampere to the project bodes well for the successful completion of the Travel and Service Centre, by directing public services to the project area. The City of Tampere has announced that it will concentrate its local wellbeing services in the commercial centres. Other functions that could be suited to the Travel and Service Centre include sports services, city offices, libraries, and parish services.

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7 Demand for housing construction

The population projection material of Statistics Finland and the population projection of the City of Tampere have been used in the preparation of this report. A population projection describes the expected population development in the area. According to Statistics Finland, its population projections are demographic trend calculations, which indicate the projected future population of the area based on the assumption that the trends of recent years will continue unchanged. In addition, “self-sufficiency” forecasts are calculated for individual municipalities. These describe the population development if there was no migration.

The statistical data on the Finnish population is based on the Population Information System, which is maintained by the Population Register Centre and local register offices. The Population Register Centre delivers information on population changes to Statistics Finland. In the population projection of Statistics Finland, the population trends are calculated based on the birth rate, mortality, and migration coefficients. These coefficients are calculated based on the final population change statistics. For more information on the methods used in the preparation of the projections, please refer to the population projection quality report. The population projections are made every three years.

Statistics Finland published the first forecast on future population development in Finland in 1934, and began publishing regional forecasts in the 1960s. In recent decades, the population forecasts have been published every three years. Beginning from the population projection of 2001, past forecasts are also available in electronic format.

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The latest population projection extends to the year 2030. The projection is provided separately for each age group. Our report makes use only of the population projection for the working-age population (ages 16-64).

Figure 1. Population projection 2014-2030 of the City of Tampere and Statistics Finland. Source: Statistics Finland and the City of Tampere

The size of households in each year, for all housing types. Source: Statistics Finland

Based on the demand resulting from population growth, we estimate that the demand for housing construction in the city centre will be around 200,000 gross m². This figure is based on two assumptions: that the need of each individual resident is around 36-38 m², and that the population will increase by around 5,000 new residents.

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8 Demand for commercial premises

8.1 Factors affecting commercial premises construction At the turn of 2011 and 2012, there were 26 large companies or groups operating in the Tampere Region with the minimum of 500 employees in the region. These companies and groups employed a total of 31,167 people (at the turn of 2011 and 2012). 49% of these jobs are in the industrial sector, 29% in the service sector, and 22% in the large companies or groups in the trade sector.

The largest companies operating in the Tampere Region (at the turn of 2011 and 2012). Source: Tampere Chamber of Commerce

In 2012, nearly 120,000 people worked in Tampere, and of this number, 77,000 were resident in the municipality of Tampere. Therefore, around 35% of Tampere workers are commuters from other municipalities. The proportion of commuters has increased from 23% (in 1987) to 35% (in 2012) in the past 25 years.

Of Tampere residents, around 20% worked outside Tampere in 2012. The proportion of commuters among the Tampere residents has increased from around 10% of the population (in 1987) to 20% (in 2012).

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Employment self-sufficiency in the Tampere region. Source: Statistics Finland, Newsec

The unemployment rate in Tampere has traditionally been higher than the national average.

The unemployment rate in the Tampere region, relative to the unemployment rate and to the trend for the whole country. Source: Statistics Finland, Newsec

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The focus of the Finnish economic structure has shifted towards private services. The proportion of trade and other market service sectors in particular is significantly above the national average in Tampere and in the Helsinki Metropolitan Area. The proportion of public services of all jobs in Tampere is slightly below the national average, whereas the processing industry is a regionally significant employer. Primary production makes only a very minor contribution to the economic structure of the Tampere region.

The proportion of jobs in Tampere by sector. Source: Statistics Finland

8.2 Construction of commercial premises

The volume of commercial premises in Tampere has increased continuously each year. For industrial properties, the change has been the most rapid after 2003-2004, but the total volume of premises has continued to grow. The office building stock has increased by around 3% each year. The number of properties dropped slightly during the credit crisis of 2009, and the property market in Finland came to a standstill at this time also. The volume of business premises has increased at almost the same rate as the population.

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Commercial premises (gross m²) in Tampere between 1999 and 2012. Source: Statistics Finland

In Finland, all new construction is subject to permit. Municipal building control authorities monitor and collect information on each construction project from start to finish. The building and dwelling production statistics are based on the reports submitted by the municipal building control authorities to the Population Register Centre of approved construction projects and construction phases.

Statistics Finland’s statistics on building and dwelling production describe the volume of construction projects that are subject to permit, and their total production volume. The statistics describe Finnish building production as a proportion of completed construction. The volume is calculated from the total volume of each project and the number of dwellings.

The function of the building is determined based on the function for which most of the gross floor area of the building is used.

8.3 Construction projects in Tampere

A total of 440,600 gross m2 of commercial premises are being planned in Tampere. Of this, around 125,000 gross m2 are offices and 215,000 gross m2 are business premises. Most of the offices are being planned for the city centre area, Ratina,

The largest individual office and educational complex is the Campus Arena, which is being built in Hervanta. Another significant development in Tampere is the Torni Hotel, which has now been completed in the Tulli district. The volume of housing projects has increased in the city, which is in line with the national trend.

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The following Table lists the projects currently being built in Tampere.

Starting date Estimated completionCity District Name Address New/redevelopment Property type Gross area (m²) 2015 / Q1 2016 / Q2 Tampere Keskusta Technopolis Yliopistonrinne, phases III and IV new office 2015 / Q3 2016 / Q3 Tampere Tampella OP Omasairaala (Tampellan pellavatehdas) Kelloportinkatu new hospital, office office 9 000, hospital 3 000 2015 / Q1 2016 / Q4 Tampere Kaleva Prisma center extension and redevelopment Sammonkatu 75 new, redevelopment retail 12 000 (extension), 19 000 (redevelopment) 2015 / Q2 2018 / Q2 Tampere Ratina Ratina Shopping Centre new retail / office 53 000 2015 / Q3 2017 Tampere Atala As Oy Tampereen Atanväylä 4, 37 apartments Atanväylä 4 new residential 2014 / Q4 2016 / Q2 Tampere Atala As Oy Tampereen Atanväylä 2, 37 apartments Atanväylä 2 new residential 2015 / Q3 2016 / Q4 Tampere Härmälä As. Oy Tampereen Härmälänrannan Turva, 40 apartments new residential 2014 / Q4 2015 / Q4 Tampere Härmälä As Oy Tampereen Tuuli, 72 apartments new residential 2015 / Q2 2016 / Q2 Tampere Niemenranta As Oy Tampereen Niemenrannan Tähkäpää, 29 apartments Matilda Niemen katu 8 new residential 2015 / Q2 2016 / Q2 Tampere Niemenranta As Oy Tampereen Niemenrannan Kaskisavu, 29 apartments Matilda Niemen katu 10 new residential 2015 / Q2 2016 / Q2 Tampere Niemenranta As Oy Tampereen Niemenrannan Fuuga, 45 apartments Raamikatu 14 new residential 2015 / Q3 2016 / Q3 Tampere Niemenranta As Oy Tampereen Niemenrannan Virvatuli, 29 apartments Niemenvainionkatu 7 new residential 2015 / Q3 2016 / Q3 Tampere Niemenranta As Oy Tampereen Niemenrannan Onnenkulta, 29 apartments Niemenvainionkatu 5 new residential 2014 / Q4 2016 / Q1 Tampere Tammerkoski Satakunnankatu 21, 37 apartments Satakunnankatu 21 new residential 3 268 2014 / Q2 2015 / Q4 Tampere Lentävänniemi Aaretti AsOy Halkoniemenkatu new care, retail 7 450 2014 / Q3 2016 / Q3 Tampere Kauppi Arvo 2 new educational, other 25 400 2014 / Q4 2015 / Q4 Tampere Osmonmäki Pohjolankadun Kotilinna Pohjolankatu / Kekkosentie new, redevelopment care / residential / retail / office 12 660 2014 / Q2 2015 / Q4 Tampere TAYS extension (E wing) new hospital 8 000 Projects currently underway in Tampere. Source: Newsec

8.4 The office market

Technological developments have introduced new working methods to offices, and the nature of work has also changed, with an increased proportion of team and project work. The importance of distance work has also increased. Due to these changes, the requirements of office premises have changed.

Office premises can be classified into four main categories. At open offices where a large number of people work in the same premises, the focus is on routine work tasks. The traditional office room, on the other hand, offers privacy, and peace and quiet. A lounge-type office promotes interaction and communication, and is widely favoured by design and advertising agencies. A clubroom-type multifunctional layout has become increasingly popular, as it offers a range of different kinds of premises for tasks that require interaction and tasks that require peace and quiet.

Well over half of the respondents to the Future Office barometer 2012 of the KTI Property Information Ltd say they are planning to increase the number of shared work stations. One-third of respondents said they were likely to reduce the volume of traditional office rooms, and nearly half estimated that the need for quiet rooms will increase. More than one-third of respondents said they will increase the number of unofficial meeting places. Over half of respondents expect that the need for team and group working premises will continue to grow.

The current office space trends include flexibility, distance working, and more efficient use of premises. Increased flexibility provides cost-efficient solutions to continual organisational changes. Distance working can reduce the need for fixed work stations and therefore also the total space need. “Hot-desking”, or working without a designated workspace, has become increasingly popular. One-third of respondents to the KTI barometer survey expect the number of floor area currently used for offices to be reduced in their company, and over one-third of respondents expected the number of employees in their company to increase.

No direct data is available on the efficiency of the use of office premises in Tampere. The graph in next page shows the responses of the KTI office barometer.

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The use of office premises in the Helsinki Metropolitan Area between 2008 and 2014 (net floor m² / employee). The stated areas are the total office area, i.e. including corridors and conference premises. Source: KTI Property Information Ltd

Open offices began gaining in popularity from the 1960s, when the main contributors were economic. In the 1990s, more attention began to be paid to the impact of noise and disturbance on working efficiency. As a result, offices that combine features of open offices and office rooms became more common. The cost of office premises continues to be a major consideration in deciding on the office type, but today more attention is paid to the efficiency of the premises and to increasing employee productivity.

Notwithstanding annual fluctuations, the space allotted to individual workers has been on the decrease. Overall, Finns still work in relatively spacious offices. Various strategies are available for reducing the need for office space, and it is estimated that companies will increasingly pay attention to space efficiency, thereby reducing the space reserved for each worker. Offices of the future will be easily modifiable, providing an efficient working environment that promotes innovation.

Although the existing studies focus on the Helsinki Metropolitan Area, the trend can reasonably be assumed to be applicable to Tampere also.

Expected demand for offices The expected demand for office space is based on the expected development in the volume of office workers, and the expected space allotment (in gross m2) for each worker within the office building stock.

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The volume of office workers has been calculated by sector (in accordance with the statistical standard industrial classification, TOL 2008, of Statistics Finland). The sectors have been chosen to represent office workers as closely as possible. The statistics are not completely accurate when viewed by sector, because they are not limited to office workers alone. With this caveat in mind, the aim has been to estimate the possible maximum volume of office workers.

The following framework lists the sectors that best describe employment in the office market.

Office and production industries:

 J Information and communications  K Financing and insurance activities  L Real estate activities  M Professional, scientific and technological activities  N Administrative and support service activities  U Supervision of international organisations and bodies

Office workers by sector. Source: Newsec, City of Tampere

The following graph illustrates the development in Tampere by sector (Figure 42). The main decrease can be seen in the industrial sector. The health and social services and various trade sectors are currently the largest employers.

Sectoral development in Tampere. Source: Statistics Finland

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As shown in the following graph, the volume of office workers has remained relatively unchanged over the five-year period covered. The growing public services, education, and health sectors have compensated for the waning industrial sector.

Development of office sectors in Tampere. Source: Statistics Finland

Based on the above classification of the volume of office workers by sector, and by directly comparing this trend to the existing premises stock in the office market, it can be estimated that the current efficiency of office premises is around 44 gross m² per office worker (35-37 m² per worker).

The volume of office workers and the office building stock. Source: Newsec and Statistics Finland

The efficiency of the use of office space in Tampere is average in comparison to large university cities. New office buildings are more efficient, as the space reserved to each worker is 15–25 m2.

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The following Table illustrates the relation between office space and office workers in Tampere. As with other cities, the trend is a downward one, a fact that is also indicated by the KTI Office barometer survey.

Calculated office space efficiency in Tampere. Source: Newsec

The following graph (Figure 46) shows the volume of offices, with the commercial space efficiency ratio of 30 m² per worker (office workers x commercial space efficiency), and the office building stock. The graph clearly shows the change in company preferences after 2003 and the years following the burst of the dot-com bubble (2001-2003) towards more space-efficient premises.

The volume of office premises, assuming a commercial space efficiency ratio of 30 m² per worker (office workers x 30 m² per worker) and the office building stock (gross m²).

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The market-based forecast for office premises

The forecast model for office demand in Tampere has been calculated based on the need for premises, number of office workers and expected development of their number, and simulated growth history data. In this model, the central factor is the reduction of space efficiency from the current average of 35 gross m2, to the average of 25 gross m2 by 2039. The default vacancy rate of the entire market is 7%, and the number of office workers is expected to increase evenly.

Figure 2. Forecast for the office demand. Source: Newsec

The Figure shows the simulated forecast for the foreseeable office demand. The green line represents the maximum increase in office space. The blue line represents the minimum demand and the red line represents the most probable growth. We estimate that over such a long forecast period, the actual growth will be demand-based rather than supply-based. This is mainly due to changes in the nature of office work and increasing space efficiency. We estimate that the average space efficiency will increase from the current 35 gross m2 per worker to around 20-25 gross m2 per worker.

Based on the estimate, the number of office workers will in 2039 be around 35,000 (currently 23,000).

The required construction will be located on new plots and on plots that are freed from office and industrial use. Therefore, based on our market-based estimate, the current office stock of around 1,000,000 gross m² or 800,000 m² (when 0.8 gross m² = 1 m²) will change as follows:

Office building stock 2012 800,000 m² Increase in the building stock, i.e. 400,000 m² construction of new premises Office building stock 2038 1,200,000 m²

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However, office premises are being built continually. We estimate that the total volume of construction in the forecast period will be around 400,000 m² altogether, or around 15,000–20,000 m² a year. Therefore, the office premises stock will increase by around 500,000 gross m² altogether, i.e. by between 18,750–25,000 gross m² a year.

Market-based location of office premises The market-based demand for office premises is expected to be concentrated in and near the city centre, assuming that rent-paying ability remains constant. One of the main premises of the forecast is that office construction will in future focus on diverse hybrid complexes near good traffic connections. Some of the construction will take place in other business areas in Tampere, but the volumes will be significantly lower. Most of the construction will be completed towards the end of the forecast period, due to the pressure created by the economic situation at the beginning of the forecast period.

The level of centralisation will be highest in the existing office areas, depending on the available capacity. These include the city centre and the Central Hospital area. In Hervanta, the pace of construction is expected to remain constant. According to our estimate, the demand-based need for office space in the city centre is around 60,000 gross m² in total.

8.5 The business premises market

In recent years, business premises have been a popular investment class, and several major sales have been finalised. Several transactions have been completed on properties in the grocery store sector, in particular. Investors look for properties that are well located relative to their needs, and that offer the right combination of business premises, and rental contracts that are of the right duration for the tenants. There is interest among investors in shopping centres also, but these rarely come on the market. Demand for properties suited to stores with an extensive space requirement is currently poor. The vacancy rate and rental levels of business premises have remained constant in good business locations. Correspondingly, the demand has clearly decreased in less-popular locations. In the trade sector, the poor economic situation and purchase power development have posed challenges, and many businesses have reported a downward trend in sales and profits. However, the grocery store sector is considered quite secure. Growth in e-commerce will present challenges for specialised stores and stores with an extensive space requirement. The impact of e-commerce on the grocery store sector is expected to be minor. We estimate that the demand for good business locations among tenants and investors will remain relatively good, even though weakened purchasing power and e-commerce pose threats to the sector.

Expected demand for business premises The forecast for the demand for business premises is largely based on the population projection in Tampere. The City of Tampere’s population projection extends from 2014

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to 2030. Based on the projection, the population in Tampere will increase by nearly 31,700 people during that period.

According to Statistics Finland, in 2012 the volume of business premises in Tampere was around 1,086,000 gross m². The volume of business premises increased by an average of around 2.8% each year from 1999 through 2012.

The development of business premises between 1999 and 2011. Source: Statistics Finland

According to Statistics Finland, the volume of business premises in Tampere is presently around 5.0 m² per resident. In 1999, the corresponding figure was only 3.9 m² per resident. In Helsinki, the corresponding figure is currently 3.0 m² per resident.

The volume of business premises divided by the population in Tampere. Source: Statistics Finland

In the coming years, the need for business premises in Tampere is expected to remain at the same level (i.e. 5.0 m² per resident). Based on this estimate, the approximately

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1.1 million square metres of business premises stock in Tampere will be upgraded so that practically no properties will be removed from use, and the volume of business premises will increase in line with the population. In addition to the general forecast, forecasts have also been made of situations in which the volume of business premises increases to 5.5 m² per resident, and others in which it decreases to 4.5 m² per resident, and to 4.0 m² per resident.

Forecast of the volume of business premises in Tampere. Source: Newsec

If the ratio falls to 4.0 m² per resident, the expected volume of business premises in 2030 is around 1.0 million gross m² and the annual change is around -0.4%. If the ratio falls to 4.5 m² per resident, the expected volume of business premises will by 2030 be around 1.1 million gross m², assuming an average annual rate of change of around 0.3%. If the ratio remains constant (5.0 m² per resident), the expected volume of business premises will by 2030 be around 1.3 million gross m², assuming an average annual rate of change of around 0.9%. If the ratio increases to 5.5 m² per resident, the expected volume of business premises will be around 1.4 million gross m² in 2030, giving an average annual change of around 1.4%.

In 2030, the total volume of business premises is around 1.3 million square metres, based on the market-based forecast. However, this forecast takes account of the increase in population only, i.e. it assumes that the population-to-business premises ratio will remain constant. The actual volume depends on the volume of business premises construction, and, in particular, on the volume of shopping centres construction in the neighbouring municipalities.

Population growth and expected increase in consumption leads to an increasing demand for business premises. Furthermore, the need for local services can increase as the population ages. We also believe that salary levels will increase in Tampere, which will lead to increased consumption. The increasing amount of e-commerce,

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home delivery services offered by grocery stores, and concentration of trade will have a lowering impact on the demand for business premises.

In case of business premises, we expect that the additional need for business premises during the inspection period is around 150,000–200,000 m2. This is largely based on the expected population growth of 31,700 persons in all of Tampere by 2030. We estimate that the removal of business premises from use will be low, meaning that the volume of business premises will during the inspection period increase from the current around 1.1 million m2 to around 1.3 million m2.

Market-based location of business premises

The demand for business premises in the city centre will increase due to the new parking facilities and construction of the station area. There are commercial services with a clear demand along main traffic routes at the edges of the city centre: for example, plans are currently being made to extend the Prisma centre in Kalevanrinne.

The southern entrance to Tampere, as well as the areas surrounding the ring routes and the railway, are in the process of developing from industrial to commercial use. The construction of Lakalaiva and Lahdesjärvi areas has been slower than expected, due to the global financing crisis and the general market uncertainty.However, these areas are expected to be in demand thanks to the good connections.

The construction of the Lielahti area and its significant population growth is expected to increase the demand for commercial services in the area, which are already good. The need for new business premises in the area is also expected to somewhat increase. The commercial significance of Hervanta is low due to limited commercial services. The commercial services in the area should be increased significantly if Hervanta is to be developed as a commercial centre.

In particular, the commercial service areas in the city centre and along the new tramway are expected to develop. Once built, the tramway will enhance the demand for areas near the tramway as the accessibility of these areas improves. Due to population growth, the demand for smaller-scale commercial local services will depend in other areas on the population and resident demographics of each area. In areas with an aging population, the sales volumes of grocery stores are expected to increase.

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8.6 The hotel market

The overnight stays of foreign travellers increased by nearly 6.5% in July 2015 compared to the July in 2014. The overnight stays of Finnish travellers reduced by nearly 1% during the same period.

The change in overnight stays in July 2015 and July 2014 in per cents.

Source: Statistics Finland

Large international events increased the number of overnight stays of foreign travellers in July 2015. Most of the overnight stays were in the major growth centres.

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The percentage change in overnight stays in each region between July 2015 and July 2014.

Source: Statistics Finland

According to Statistics Finland, the total number of overnight stays in hotels was nearly 2 million days in July 2015 in the whole of Finland. This shows an increase of around 4.7% over the previous year. In the Tampere Region, the increase in the number of overnight stays has been strong.

Source: Statistics Finland

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The demand for hotel rooms has reduced in recent years due to the increased number of alternative accommodation options. In the consumer market, the number of services that offer accommodation has increased, which has been reflected in a lowered demand for hotel rooms among some of the consumers. However, the supply of hotel rooms has remained steady among corporate customers and among older consumer groups. The location of the Travel and Service Centre will be reflected in the demand for hotel rooms, especially among corporate customers and those looking for a quick overnight stay.

The selection of hotel accommodation is already extensive in Tampere, and it will expand in the years to come. The hotel opposite the current railway station is being extended and a new hotel will be built adjacent to Tampere Hall. The latter hotel will be run by a new international hotel operator, Marriott.

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9 Summary

Several significant projects are currently underway on Tampere’s property markets, which if implemented will greatly change the traffic and focus of services in Tampere. Of the projects currently being planned or already underway, the Deck and the multifunctional arena, Ratina Shopping Centre, and the tramway will all have a major impact on city centre business.

The excellent location provides encouraging grounds for the implementation of the Travel and Service Centre. We estimate that the value of the completed project will cover all of the investment costs and facilitate the necessary investments in the infrastructure that is closely linked to the Travel and Service Centre. The interest of international property investors in the Finnish property market has been increasingly focused on the best locations in the city centre areas of the largest Finnish cities, and in particular the importance of efficient public transport has grown in the markets for residential and commercial premises.

The planning of the schedule must be based on the purposeful phasing of the project, and on minimising the risks relating to the financing and scheduling of the implementation. What the project offers to the housing and operating premises markets must be proportioned to market demand. The most natural solution would be to begin the project with housing production in the northern parts of the project area.

The location of the Travel and Service Centre provides excellent opportunities for implementing the commercial concept. For the shopping centre to be built as part of the Travel and Service Centre, we see two main options: A) A shopping centre based on daily and weekly running of errands (volume around 15,000–25,000 m²), and B) A shopping centre focused on shopping and entertainment (volume around 35,000– 50,000 m²). The lower-volume option focuses on supplementing the traffic functions of the station and services, with the focus on quick and everyday services. The more extensive option would constitute the leading cluster of shops and entertainment in the centre of Tampere.In our view, there is demand in the market for the more extensive option. In comparing the two options, the functionality of the solution as part of the Travel and Service Centre should be emphasised, as should the importance of the chosen solution to the entire city centre.

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