Dubai: Retailers with long-term tenancy contracts should have two to three months’ notice period is one of the suggestions leading retail groups in Dubai have put forward as the sector tries to get back on its feet.
The coming months are likely to see major changes in the tenant mix at malls and on street-side retail locations in the UAE, brought on by uncertainty caused by the COVID-19 slowdown. “Being allowed to serve two to three months will benefit both tenant and landlord – this way there will be minimal disruption to both operations,” said the head of one of the biggest luxury retail groups in the country.
“A one-month notice leaves too little time for adjustments and to seek options."
Extending notice period for long-term tenants was one of the recommendations made at a virtual meeting these retailers had with top officials from Department of Economic Development earlier this week.
Many tenants have entered into long-term contracts with punitive penalty clauses - the new suggestion is to reduce the burden of penalty when it comes to breaking the lease agreement. "These are suggestions - it’s unclear what this will actually accomplish but the impulse certainly seems to be to allow for easier contractual breaking clauses for longer term leases," said a retailer. "Especially in light of the fact that numerous landlords are still not being accommodative."
But other industry sources say it's time to bring in changes. “It will be difficult to manage long- and short-term tenancy contractors especially without clear termination clauses,” the head of operations at an apparel retailer said. “Every business is facing a cashflow crisis – everyone needs help.”
The retail sector wants to offset the risk of a wave of shops shutting down because their operators could not generate enough cashflow. Some worry that vacancy levels might shoot up to 15-20 per cent if adjustments are not made between landlords and retailers.
Retailers at the meeting repeated the call for the government to help the sector in some form or other. They want some “directive” to landlords that would allow retailers to operate on a rent-free basis for up to four months. The other option would be for an across-the-board reduction in rentals at retail and commercial properties.
• Representatives of these business groups will also come up with a consolidated presentation on the way forward. This presentation is to be submitted to top government officials and agencies.
But since April 25, when retail businesses gradually started opening up after restrictions were lifted on their activity, they have not been hearing encouraging feedback from landlords on their rental requests. Apart from a handful of landlords who were willing to offer three-month rent waivers, the rest only allowed rent deferments and not outright waivers. Even with the deferments, the period allowed was the month during which shops were closed on government orders.
That, according to retailers, is not being too helpful.
The consultancy KPMG recently came out with a status report on how the retail sector in the UAE has fared in recent weeks. The numbers KPMG projects are stark.
“Luxury and fashion retailing has been particularly impacted by the crisis,” it reports. “For most sales were down by 20-50 per cent in the first-half of March.”
The numbers have only worsened since then. The gold and jewellery sector say the April 26 “Akshaya Trithiya” – a day when Indians tend to buy gold or other assets – sales were a total write-off. “Gold retail will be the worst hit by the COVID-19 – shopper traffic since then has averaged less than 10 per cent at most stores,” said the owner of a mid-sized jewellery network.
“Only rent adjustments and more understanding on the part of the landlords will salvage the situation.”
Jewellery industry sources say the Dubai Government can show the way with its rental terms for the Gold Souq Extension project in Deira, which is likely to be open sometime later in the year. The Extension creates a state-of-the-art retail destination for precious metals retail and trade near the landmark Hyatt Regency.
“Dubai Government agencies can show private landlords how retail sector can be revived with some initiatives on rentals,” said one jewellery retailer.
At the virtual meeting this week, retail and commercial tenants also wanted a revision of the RERA (Real Estate Regulatory Agency) to reflect current situation.
“The rental aspect should not choke off business prospects – that’s the best support retailers can get,” said a retailer.