Malls offer UAE's retailers rent-free months, but this comes with strings attached
Retailers complain they are not getting immediate relief and this is hurting cashflow
Dubai: Mall owners in the UAE are offering additional relief to their tenants to cope with the low-sales crisis – but those are coming with strings attached. A lot of strings, according to retailers.
To be eligible, retailers must first confirm they are willing to sign lease extensions. Not just that, these retailers will also need to commit to taking up space in new malls these developers are creating.
“By insisting on lease renewals before any relief, mall managements can ensure they will not get hit with sudden vacancies by a retailer pulling out at the end of the current contract,” said the head of a leading brand with multiple mall locations in the UAE. “Malls are concerned that a lot of retailers might consider shutting down some of their mall-based outlets to preserve cash.”
Not just that, mall managements are insisting on pre-commitments from retailers for those properties that are still getting built. Which leaves little scope for retailers to change their minds if the market situation tells them they are better off not opening one now.
What are retailers getting in return?
In most cases, they are being given one- to three- months rent-free period… once their current lease expires. But for now, they will still need to pay in full, even though sales are down an average 40 per cent from January levels.
“Rent-free at the end of the lease term next year is not much help when retailers prefer saving cash right now,” said an industry source. “Paying the full rent in these months when demand has recovered only partially is hurting retailers’ cashflow – but not the landlords’.”
So, no immediate relief for retailers, and the best they can expect is to get a few months rent-free provided they agree to a lease renewal.
Rents are dropping
According to market sources, a new store opening at a mall is coming at a much lower rent than what an existing retailer will be paying there. Even on lease renewals, gross rents have slipped by 30-40 per cent at some malls as a direct result of the pandemic and its impact on retail sales. In some cases, the drop has been even steeper, touching 50 per cent.
Which is why mall managements are now trying their best to prevent their current retailer base from exiting. Filling up space thus vacated is not an easy task these days.
How’s retail doing?
Visitor traffic to the malls have increased, with weekends recording levels back to pre-pandemic times. But all those visits have not pushed sales back to those levels, or anywhere close to them.
Retailers say they are seeing more instances of sales being lost to online competition, whether it’s in fashion, accessories, tech gadgets and even grocery.
“Mall managements can clearly see how dire the situation is on the ground,” said a retailer. “Once we lose a shopper to online, they are not likely to rush back to brick-and-mortar settings. What we need is help save up funds on rents and wait for sentiments to improve.
“For that we need relief measures now… and not in 2021.”
Working on a new lease contract
Retailers and mall owners in Dubai had been negotiating on creating a new leasing contract even before COVID-19 struck. But after the pandemic and the impact it had on retail activity, there was renewed enthusiasm for a revised lease agreement for retail landlords and tenants.
But after an initial flurry of talks, not much has happened since… but retailers remain hopeful. Under the proposed changes, it would allow:
• An exit clause for the tenant after one year;
• Shorter lease terms such as two years;
• Rental cheques to be handed over yearly and not for the entire lease period; and
• Gross rent to be fixed for the lease term.
If any or all of these measures are enacted in a new retail contract from next year, that in itself would signal some progress for retailers.
There should be regulatory monitoring of how commercial buildings - and especially malls - levy a host of other charges like service charge, chilled water charge, marketing fees etc. Currently, tenants have no clue or say regarding how these charges are levied