Dubai: While Abu Dhabi's retail rental rates have been holding up for the better part of the year, they may not do so for long. New malls that are scheduled to open in the second half of the year — or early next — could have a direct bearing on what existing retail locations can command.
According to a recent Jones Lang LaSalle report on Abu Dhabi's real estate space, three new retail destinations — Paragon Mall (on Reem Island), Mushrif Mall (on Airport Road) and BMC Mall (close to Mussafah) — are close to completion.
"The considerable future increase in high quality retail supply is expected to soften rental rates," the report said. According to retailers with a sizeable presence in Abu Dhabi, it will.
"The only thing that was preventing mall owners from dropping their rents further or offer more incentives was the lack of new supply," said one retailer with three major store locations in the emirate.
"This situation will hopefully be rectified before the year is out."
Good opportunity
According to Jones Lang LaSalle, prime shopping mall rentals on average for line stores are around Dh3,230 a square metre in Abu Dhabi, while anchor tenants pay around Dh640 a square metre. The typical rents for food and beverage outlets are pegged around Dh2,100 to Dh2,900 a square metre.
Across the board, Abu Dhabi's retail space saw year-on-year declines of eight per cent to Dh2,750 a square metre from Dh3,000, as "many tenants are finding it challenging to generate revenues to support budgeted target sales/rent ratios," the report added.
But these changes took place during the second and third quarters of last year and nothing much has changed since then. "In the super-regional and regional malls, lease rates have stabilised with no significant changes in rental rates over the last three quarters," said the report.
But not for long if Abu Dhabi's retailers have their way and the new mall capacities come in handy to force the issue.
"The new malls will create fresh options for retailers — mind you, it's not just about forcing mall owners to drop rents," said the retailer.
"Every retail operator gets an opportunity to determine which location would suit his best interests going forward — the existing one, a new place or both."
At the end of the second quarter, total retail space in Abu Dhabi district was at 1.4 million square metres, which should swell to 2.4 million square metres and more by the end of 2012 when the new additions start pulling their weight.
There is broad consensus among industry observers that the retail sector in the capital has held its own during the first half of the year.
Anecdotal evidence from the leading retail chains indicate that in some of the months their sales from Abu Dhabi have actually been higher than in Dubai.
All of the new capacity will play a decisive role on another front — that of ensuring more shoppers will do their buying in Abu Dhabi than in Dubai.
Balancing demand
"With increasing supply, the retail market will become more competitive and will separate between high and low quality product, with emphasis on location, access, tenant mix and quality of design," the Jones Lang LaSalle report said.
At another level, there will be a welcome balance between retail space in the malls and all those stand-alone stores spread across the city. The latter makes up 64 per cent of the available supply.
The quality of existing shopping centres is generally poor in terms of design, access, configuration, etc.," the report adds.
"Abu Dhabi is currently under supplied relative to the substantial spending power of the population and rising tourism spend."
The current shortage, the real estate consultancy contends, is estimated at 700,000 square metres or so. In other words there's some catching up to do, which is where the three new malls can play their part in setting the equation right.
- Achieved rents in high quality regional and super-regional malls are around 40 to 50 per cent higher than in other retail centres in Abu Dhabi, according to Jones Lang LaSalle.
