Dubai
With significant new capacity coming through the pipeline, many of Dubai’s mall and shopping centre operators have a lot to contend with over the next two to three years.
“Dubai’s retail sector is expected to see an additional 900,000 square metres of space getting delivered over the next couple of years, either through new shopping centres or expansions to already existing ones,” says a new industry update issued by the consultancy Knight Frank. “This comes as developers use retail as an
anchor for their mixed-use developments.
“The delivery of additional retail supply is expected to put pressure on overall occupancy rates.” (Based on current estimates, 54 per cent of the new capacity will be within “super-regional” shopping malls of 800,000 square feet or more of gross leasable area.)
It could mean there will be a flight to quality and novelty among retailers as the newer destination malls open their doors. The city’s older malls have so far held the line on rental terms, apart from a few minor adjustments. Whether they can continue to do so will be the big question.
“The retail market faced continuing headwinds in Q1-17 as the strong dirham continued to dent retail sales,” the Knight Frank report adds. “This in turn exerted pressure on retailers’ ability to meet the high rental rates imposed.
“The general macroeconomic conditions which resulted in the slowdown in retail sales growth in 2016 are still largely in place. Once used to double-digit growth (10-15 per cent), UAE retailers are now seeing modest single-digit growth in sales.
“Consequently, a number of landlords have introduced flexible lease terms including longer rent-free periods in order to retain their key occupiers.”
Apart from massive new capacity waiting in the wings, there are other concerns the retail sector will have to confront. Retailers will have to decide whether they should absorb the upcoming 5 per cent VAT on goods, which, if so, will impact on their margins.
“Retailers seeing weaker sales will be under increasing pressure to look at overall occupancy costs, as VAT will increase these by 5 per cent (assuming that VAT will be charged on commercial rents). Tenants are expected to use this as leverage in rent reviews with landlords for 2018.”
The other big uncertainty comes in the shape of inroads that will be made by online sales. “Already traditional retailers are facing competition from e-commerce leaders such as Amazon; a trend likely to continue and expand in the future,” the report adds.
“We expect product availability in online channels within the region to increase dramatically.
“Based on research and estimates by Chalhoub Group, e-commerce sales are expected to account for $1.5 billion (Dh5.5 billion) of the Gulf’s high-end luxury segment within the next four years. With a large population under 30, high levels of internet penetration and governments actively focused on investing in technologies and entrepreneurship, the online retail industry is expected to soar by 2021.”
