Retailers pause for breath before renting new mall space

Abu Dhabi: After working overtime to get into as many of the newly-opened malls as possible in the last two years, retailers can now pause to take a breather in Abu Dhabi (and Al Ain for that matter).

Retailers will have to wait until next year for the opening of Danet Abu Dhabi Mall, followed by the sprawling Yas Mall in 2012.

This leaves the present for retailers to take stock of where they and what they ought to be doing to make optimum use of the next round of opportunities.

Moreover, there is nothing like an economic downturn for retailers to learn new tricks.

Analysts believe those operating in Abu Dhabi retail space — the retailers and landlords alike — are absorbing these lessons.

"With the coming of the supply-demand correlation, there is going to be a measured take-up of new retail space," Mark Morris Jones, director at CB Richard Ellis's Middle East operations, said.

"In the present, retailers can't afford to get overexposed, they have to have the cash flow to expand.

"Where landlords are concerned, they need to bring flexibility in their lease terms. In short, there ought to be an understanding the approach to risk of a retailer is different to that taken by a retail developer."

This has seen new retail lease contracts being drawn up to more "stringent" parameters.

They reflect the retailer's capacity to actually meet the sales per square foot target and not just go by landlord demands.

Retailers on their part realise they just cannot go on seeking a presence at all possible locations and risk cannibalising their existing sales. And at this point in time, retailers are willing to let go of locations that are not working for them any longer, even in Abu Dhabi, which was unthinkable just a year ago.

Such tweaks have already been seen in Dubai's retail space in the past 12 months and more, more so as recent economic uncertainties did have a disproportionate impact on the sector.

"It is no longer the case to suggest the Abu Dhabi retail fundamentals are somehow different from Dubai's," Jones said. "The whole market has made a transition to maturity."

According to a latest report from Colliers International, retail spending per square metre in Abu Dhabi will start declining ‘significantly' this year, principally because of the 70 per cent increase in retail space over the recent past.

"Provided scheduled construction targets are met and keeping the total income of Abu Dhabi residents as a constant throughout the next three years, retailers can expect lower revenue per square metre of retail space," the report said.

During this period, retail space in Abu Dhabi will shoot up from 398,000 square metres at the beginning of the year to 1.4 million by 2012.

The largest chunks of the new space will be created by Danet Abu Dhabi Mall, with 185,000 square metres of gross leasable area, and Yas Mall with its 296,000 square metres. "If Abu Dhabi's retail sector lacked in anything, it was the ‘monster mall' — something similar to Dubai Mall or Mall of the Emirates," Jones said. "The Yas Mall will rectify that situation.

"From a market which had operated with two just malls for the better part of ten years, Abu Dhabi was left quite a long way behind by the other leading locations in the Gulf and not just Dubai. That's changing and not a moment too soon either."

The Colliers International report too takes a favourable view of Abu Dhabi's retail interests. "Despite immediate concerns of low footfalls in smaller shopping centres and current economic conditions, we remain bullish on the retail market over the long term," it said.

It also helps the sector's fortunes in the capital city are driven UAE national spending power rather than "tourism inflows and expatriate spending, making it less susceptible to the current downturn and fickle consumer behaviour," the report added.

That by itself would be enough to spread cheer across the sector and to its stakeholders.

Gap narrows down

While retail rentals in Abu Dhabi's have managed to narrow the gap with Dubai's in the last two years, it still exists. Line store rentals in Abu Dhabi are lower by as much as 53 per cent compared with similar formats in Dubai, according to data provided by a Colliers International report.

The difference is not just confined to the rentals alone. The present gross leasable area on a per capita basis in Abu Dhabi stands at 0.5 square metres against Dubai's one square metre plus.

As of end 2009, shopping mall space in Abu Dhabi totalled 398,000 square metres of gross leasable area and with a 95 per cent occupancy rate on average. As for the new generation malls which opened recently, they are doing even better at full occupancy.

But Andrew Goodwin, director and head of retail at DTZ, the specialist consultancy, believes there is scope for further movements on the rental side. "Yes, the good malls are expensive to get into, and the bad ones will lose their quality tenants as new supply comes through.

"The two malls that opened recently - Al Wahda and Khalidiya - have got the benefit of good locations, are fully occupied and yet their rents cannot be said to be on the higher side. I foresee this would change.

"Going forward, I believe the Yas Mall will be the super-regional mall that Abu Dhabi presently lacks."

Progress

The leasing activity is starting to build up for the Central Market development by Aldar Properties.

"The souq area is being actively leased and it's my understanding that Aldar has established quite high rental levels at the Emporium," said Andrew Goodwin, director and head of retail at DTZ. "They have just announced one anchor store by signing up House of Fraser for the Emporium and quite close to confirming a second anchor. This would raise the momentum on the on-going leasing programme.

"If I have an issue it is that the Central Market is not within a wider shopping environment and also involves a lot of project phases. But it is large enough to create a kind of critical mass to overcome this. It should be a destination in itself offering an experience over and above that provided by retail."