Abu Dhabi is a top stop for shoppers

Expatriates and high-spending consumers in Abu Dhabi have traditionally frequented Dubai malls, given the lack of high quality retail schemes in the capital. While existing malls such as Marina Mall, Abu Dhabi Mall, Al Wahda Mall and Khalidiyah Mall enjoy high occupancy, they lag behind their Dubai counterparts in terms of design, tenant mix, access and car parking. However, several high quality retail outlets are expected to shape up in Abu Dhabi this year, halting the exodus of high-spending shoppers to Dubai. This considerable future increase in retail supply could also, however, soften rental rates further, warn experts. 

Opening soon

"The schemes poised to open during 2011 are the Bawabat Al Sharq Mall, 9712 Mall in Mohammad Bin Zayed City, Emporium at Central Market and Mushrif Mall on Airport Road. These developments will add over 250,000 square metres of retail to Abu Dhabi," forecasts Michael Leighton, senior retail consultant, CBRE Middle East. However, with most residential communities in Abu Dhabi Plan 2030 still a work in progress, certain new retail schemes may not have a sufficient catchment area to draw demand from.

"Paragon Mall on Reem Island will be opening at the same time as residents move into Marina Square apartments and critical mass will, therefore, exist," explains Harry Goodson Wickes, associate at Cluttons.

"If a shopping mall is developed before the proposed surrounding residential, then the retailer will face a more challenging start-up period. However, the retailers accept this scenario, and in most cases the landlords will take this into consideration when negotiating a deal," explains Leighton. However, in the case of Yas Island, Aldar has first developed the Yas Marina circuit, Yas Links and Ferrari World together with several hotels to form a regional sports and leisure destination in advance of a regional shopping scheme, viz the Yas Mall. Though Abu Dhabi has had its share of regional schemes such as Marina Mall, Abu Dhabi Mall and the recently opened Dalma Mall, only a super regional mall can transform the capital into a recognised international destination. 

Catchment areas

While the staggered completion dates of new malls is expected to prevent an over-saturation of retail, it remains to be seen whether the shopping centres will infringe on their catchment areas. "The new malls being developed in Abu Dhabi will cater to a diverse range of demographic profiles. Yas is poised to be a destination mall, which will attract a large element of tourist trade as well as local and expat shoppers from both Abu Dhabi and Dubai. Dalma Mall is located opposite Mohammad Bin Zayed City and will, therefore, cater to the local, GCC and expat residents of mainland Abu Dhabi. The Emporium at Central Market, located in downtown Abu Dhabi, is targeting the high-income shopper from within Abu Dhabi," outlines Leighton.

The scheduled opening of new malls could have a profound impact on standalone retail centres and high street retail. As per a Jones Lang LaSalle (JLLS) report on the Abu Dhabi market, current retail supply is dominated by non-malls, which comprise 64 per cent of the total supply. "The high street retail format will continue to have a function in the city, but fashion and comparison shopping will work better in malls as demonstrated in Dubai, Qatar and Bahrain. However, certain retailers will choose to retain a high street presence to increase their profile or access a specific market. Patchi, for example, has an incredibly successful high street format," says Andrew Goodwin, director, DTZ, a real estate consultancy. 

Emergence of two-tier market

The delivery of high quality retail could adversely affect old shopping malls, which may reel under vacancies and falling rents. While experts predict the emergence of a two-tier market, older malls that are well managed and with a sustainable tenant mix are likely to survive. "We expect the landlords to adapt to the market through the repositioning of their schemes. Refurbishment may be a consideration too. If the repositioning is undertaken in the correct manner, then we believe that the older malls can still enjoy an attractive footfall with limited impact on their turnover figures," suggests Leighton. Meanwhile, off-island malls such as Dalma Mall, 9712 and Bawabat Al Sharq could find it tough to secure tenants owing to the slow development of residential accommodation in the surrounding areas. 

International retailers

The opening of Ferrari World and other tourism attractions in Abu Dhabi has caught the attention of international and regional retailers. It also helps the capital's landlords that retailers have maximised their expansion aspirations in Dubai. A few international retailers, such as the House of Fraser department store in the Central Market Emporium, are preparing to open their first regional stores in Abu Dhabi.

"Abu Dhabi is now a serious expansion destination within the Middle East. The Sultan Centre [Kuwait] will anchor Reem Mall. Mubadala's scheme at Capitala next to Zayed Sports City probably has the highest aspirations for new retailers and new retail formats," says DTZ's Goodwin.

Even as there is a waiting list for retailers in Abu Dhabi Mall and Marina Mall, which currently operate at 95 per cent occupancy, the scene is not so rosy elsewhere in the capital. With tenants finding it challenging to generate sufficient revenues, most are reviewing their existing portfolio and closing non-profitable outlets. Characteristic of a tenant-centric market, retailers are now increasingly seeking break clauses, rent-free periods and turnover rents during lease renewals and new lettings.

"Landlords must concentrate on getting the right mix of tenants rather than the highest rents or longest leases. An attractive and successful shopping centre will be more sustainable and retain tenants and rents in the long-term. However, they should be proactive in removing underperforming tenants as only through this will the tenant mix improve," recommends Goodwin. 

Rental declines

As Abu Dhabi malls are not heavily dependent on revenue generated from expat and tourist-based demand, the rental levels have not fluctuated as much as in Dubai. "They have been remarkably consistent in Abu Dhabi, with only historic headline rents from 2007 and 2008 in established centres having to adjust," says Goodwin. As per the JLLS report, average rental rates have remained unchanged in the main malls in Abu Dhabi since the third quarter of 2009 at around Dh2,750 per square metre. However, rents in upcoming malls outside Abu Dhabi Island continue to decline. The average estimated rental value outside Abu Dhabi island is Dh1,400 per square metre per annum, the report claims.

With Dubai retail rents falling from the unsustainable levels achieved during the boom years, Abu Dhabi is closing in on the rental gap with its neighbouring emirate. "I expect the next good quality scheme in Abu Dhabi, expected to be the Emporium being developed by Aldar, to close the gap further if not exceed the latest Dubai rents," says the DTZ executive. Though none of the existing malls in Abu Dhabi rival those in Dubai in terms of size and diversity of tenant mix, experts believe the shopper exodus can be halted to a certain degree if the capital's new retail schemes provide a similar quality and shopping environment.

"So, Abu Dhabi will need to wait until the next large schemes," Goodwin concludes. Until then, the capital's shoppers seem destined to continue their commute for a quality shopping experience.

In numbers

95% Current occupancy at Abu Dhabi Mall and Marina Mall
64% Amount of retail supply constituted by non-malls in Abu Dhabi
1400 Average retail rents (in dirhams per sqm) off Abu Dhabi island
250k New retail space (in sq metres) to come online this year in Abu Dhabi