The Middle East is regarded as one of the most fertile soils from around the world to support e-commerce. With a dynamic young population, some of the highest internet penetration levels, and an ongoing surge in connectivity via smartphones, online shopping is evolving rapidly.

There have been some recent headline grabbing stories — the acquisition of Souq.com by Amazon and other success stories, such as popular websites including Cobone.com and Namshi, which together are driving interest among tech — savvy consumers.

Within the wider region, the UAE clearly stands out as the largest e-commerce market, accounting for a majority of consumer online spend, especially in electronics and travel. That said, there is still massive potential to evolve.

While its contribution to retail in the UAE remains a very small fraction of the overall market size, e-commerce represents a huge opportunity for growth of new multichannel businesses. According to estimates, e-commerce equated to just 1.5 per cent of the overall retail industry spend in the UAE during 2016, a figure which could rise to 4.1 per cent by 2021. Consequently, there is room for multiple market players, presuming that they can offer customers a compelling experience. Customers’ expectations are already at an all-time high and online retail providers will need to be able to align with this from a technology and experience perspective to ensure they remain competitive. It is clear that major structural changes will need to take place in terms of infrastructure and bricks-and-mortar stores.

E-commerce will drive a new wave of development in logistics as well, with new distribution facilities being developed around major transportation nodes, such as the Shaikh Maktoum International Airport (Dubai South), where IKEA’s new warehouse has been delivered. In terms of malls, we anticipate that entertainment and F&B facilities will continue to become an environment less for standard retail purchases and more for experiences. As a result, the design of malls will also need to change to incorporate more on-location storage facilities, click-and-collect areas and new concept stores.

While e-commerce is on an upward trajectory, it doesn’t necessarily spell doom and gloom for bricks-and-mortar businesses. We feel that e-commerce can compliment the traditional retail offer ... so it doesn’t have to be one or the other.

There is a clear opportunity for retailers to introduce or strengthen existing online platforms and also improve in-store retail interactions to deliver a compelling customer experience to succeed in a market where shopping and visiting malls is widely regarded as the main leisure pastime. “Free shopping” could be the next big wave to attract shoppers.

From a bricks-and-mortar perspective, the Dubai market softened in H1-2017 mainly due to depleting consumer confidence and less optimism about spending. As a result, Dubai has become increasingly fragmented over the last 18 months, with a clear divergence evolving in the performance of major destination malls.

That said, prime locations continue to attract the crème de la crème of international brands. To cope with weaker demand, retailers offer promotions to entice customers and maintain footfall. This is evident in the recent three-day “Super Sale” in May, which saw consumers flocking to the malls.

The saturated market is also encouraging developers to differentiate to stand out from the crowd. Urban-style outdoor concepts such as Box Park, Citywalk and Design District are becoming popular. Concepts that promote local designs and talent are gaining momentum and outperforming various existing brands in the market.

For smaller retailers, and those not supported by large franchise holders, the high rental rates charged by larger shopping centres have become a major operational issue. Occupancy rates are now showing signs of downward pressure as stores close or relocate. With retail conditions continuing to deteriorate, we expect to see vacancy rates rise further in the longer term, as new supply levels outpace population and tourism growth, and as retail sales per capita decline. It is likely this trend will be driven more by the softening performance within secondary mall locations and within seasonally impacted non-mall formats, and less from the major destination malls, which have traditionally cannibalised demand from the smaller centres.

The long-term future of retail and particularly e-commerce in the region remains bright and there is scope to witness success of several local and international players in the market.

The writer is the Head of Research & Consultancy at CBRE UAE.