However, a recent report by real estate consultancy Investment Boutique claims that the capital city is heading towards a more acute oversupply situation than Dubai in the medium term.
CEO of Investment Boutique (IB) Heather Wipperman Amiji attributes this partly to the large concentration of retail developments within common catchment areas. For instance, she cites how the Bawabat Al Sharq Mall, the 9712 BMC and Dalma Mall in Musaffah are all coming up in the southern part of Abu Dhabi. This trend is also evident in the central business district where the Central Market Souq and Al Reem Mall are shaping up. The extensions to Abu Dhabi Mall, Al Wahda Mall and Khalidiyah Mall will further contribute to the capital's gross leasable area (GLA).
The IB report predicts that there will be over 2.4 million square metres of available retail space in the Abu Dhabi metropolitan area by 2012. The emergence of several retail offerings in single catchment areas is likely to cause a softening of rental rates. "Retailers within the same catchment areas are being approached by multiple developers to take up space," says Wipperman.
"Poor town planning and highly competitive developments will result in lower than expected vacancies as retailers will only look to open one or maximum two stores within a particular catchment area."
The oversupply situation will be compounded by the lack of tourist-based demand and the poor accessibility and infrastructure surrounding the new malls. "Delays of construction projects leading to larger lay-offs are starting to hit Abu Dhabi only now — Dubai has already seen this and has weathered it," she says.
High street retail accounts for a significant chunk (693,000 square metres GLA) of the current retail offerings in Abu Dhabi today. These outlets are likely to experience lower footfalls once the super regional malls open shop. Malls that offer diverse retail offerings, better parking and accessibility to shoppers are sure to lure the footfall and retailers away from high street retail, experts predict. "Local authorities must enforce strategic town planning practices to protect various retail and business nodes," Wipperman suggests.
While super regional malls are plentiful in Dubai, the capital currently has only one in this mould: Marina Mall. This explains why most affluent residents in the capital repeatedly visit Dubai's malls. However, this trend should soon be reversed by Al Wahda Mall (where extensions are under way) and the Dalma Mall being added to the capital's portfolio of super regional malls.
"Future super regional malls planned/under development are the Al Reem Mall and the Yas Mall. These should both open at the earliest by 2012."
Project timeframes affected
Unlike Dubai, where malls have acted as catalysts for residential development in the vicinity, very few malls in the development pipeline in Abu Dhabi have a natural catchment area.
This, in turn, means that delays in residential projects in the catchment area have resulted in malls' project timeframes being redrawn.
"Some malls, like the Yas Mall and Al Reem Mall, do not have an existing natural catchment area as the entire immediate vicinity of the mall is under construction with no population and limited accessibility," says Wipperman.The IB report also alludes to the possibility of increased acquisition activity of well-designed retail assets in the region. Though the diversified revenue stream and high rentals are incentives to attract institutional investors, the legal constraints over mall ownership and debt funding are likely to impede mall acquisitions. "I do expect to see some consolidation or restructuring of ownership make-up of malls in the UAE in the near future, with a considerable involvement by institutional players," says Wipperman.
what's in store for high-end retailers
With consumers tightening their purse strings, sales at luxury retailers have taken a beating. However, there has not been an exodus of high-end retailers from the region. Instead, retailers are closing or relocating from peripheral stores into better located stores in the UAE.
"Opportunistic retailers with poor business models and high internal leverage who rode the boom period have been hard hit, and no doubt there have been casualties in this sphere. But the major luxury brands are still here and will remain in the UAE," says Heather Wipperman Amiji, CEO of Investment Boutique.
Providing the example of the recently opened Mirdif City Centre, she reiterates how the tenant mix at new malls has to cater to the spending power of the local catchment areas.