Increasing costs could put off mall tenants in UAE

Dubai: Retailers remain bullish in Dubai's growth prospects, but with the supply of retail space growing inexorably upwards and rents rising, demand and affordability are a major cause for concern, an industry expert said on Tuesday.

Dubai is expected to see an explosion in shopping centre supply with the influx of at least nine mega malls, fuelling fears that there won't be enough footfall to sustain all these mega developments.

Colliers International Middle East chief executive officer John Davis said "demand is obviously a cause for concern".

"Will footfall come? I think we have to depend on tourism," Davis said during the second day of Middle East Council of Shopping Centres.

Occupancy

Currently, Davis said, Dubai's retail sector remains 'very strong' with occupancy rates at 98 per cent to 100 per cent.

Destination malls have an average occupancy of over 90 per cent, while over 70 per cent of the forthcoming shopping mall supply entering the market between 2008 and 2010 has already been pre-let, he added.

While everything looks positive at the moment, Davis said retailers are concerned with the cost of rolling out new stores. "As we have seen, shopping centres open and tenants will come out when their lease expire and go into a level that can suit their needs," Davis said.

"Another concern is affordability. Tenants want to go into shopping malls, but there's a balance between what they can afford and what the developer requires in order to make his economics work," Davis added.

Anchor tenant rates are expected to increase, while lifestyle rents, which average $1,200 per square metre, are increasing up to $1,800 per square metre in premier destinations such as Mall of the Emirates, Ibn Battuta and Bur Juman.

Dubai's shopping space is set to expand further with the completion of Dubai Mall, Oasis Mall, Mirdiff City, Mall of Arabia, and five malls recently announced by Nakheel.

Experts earlier said smaller and older malls are likely to experience high vacancy rates.