GCC malls need new revenue models with AI changing shopper habits

Dubai: GCC retail real estate developers need to rethink how malls and shopping destinations make money as e-commerce, AI-driven discovery and changing consumer habits reshape the sector, according to a new report by Boston Consulting Group.

The report, titled Imagining the Future of Retail: Beyond Space, says the region’s retail real estate sector is expanding quickly, with millions of square metres of gross leasable area under development across major projects in Riyadh, Jeddah, Dubai and Doha.

BCG said traditional space-led models are becoming less effective as new supply enters the market and retailers change how they use physical stores.

In some GCC markets, luxury retail space has already expanded faster than addressable consumer spending, putting pressure on sales per square metre and forcing developers to reassess future projects. The report also found that up to 25 per cent of revenue at leading assets now comes from sources outside gross leasable area.

"The forces reshaping retail are converging faster than most operators recognise, and traditional space-centric models are no longer sufficient for what lies ahead," said Andrea Pierobon, Partner at BCG Middle East. "The GCC has built world-class retail destinations, and the opportunity now is to rethink what retail real estate actually delivers in terms of moving from space-centric models to capability-led approaches."

The report identifies five forces changing the retail operating model, including e-commerce growth, omnichannel retail, experience-led consumption, retail media monetisation and AI-powered shopping discovery.

Retailers are reducing store sizes, opening smaller formats and experimenting with new types of space as more sales move online. At the same time, developers can no longer treat digital and physical retail as separate businesses, with consumers increasingly moving between apps, stores, delivery platforms and loyalty channels before making a purchase.

Physical retail is also becoming more experience-led, with consumers expecting malls to offer entertainment, culture, events and social engagement alongside shopping.

BCG said retail media is another emerging revenue stream, with global retail media revenues forecast to grow by $213 billion by 2028. Many GCC operators have yet to capture that opportunity at scale.

AI is adding another layer of disruption, with more than half of consumers under 34 already using AI tools as part of their purchase decisions, according to the report.

BCG said retail real estate leaders should prepare for three possible disruption scenarios, including a future where more than half of retail sales move online, challenging the economics of traditional mall development.

A second scenario looks at data replacing product margins as a primary value driver, shifting power to operators that can capture and monetise customer intelligence. A third scenario considers AI agents becoming central to consumer purchase journeys, changing how shoppers discover brands, compare products and make decisions.

The report said GCC developers are likely to fall into three broad categories. Community and convenience retail will focus on local, frequent-use shopping, while experience-led destinations will compete through events, culture and social connection. Ecosystem platform developers will use data, partnerships and integrated services to capture value beyond leasing space.

"There is an immediate opportunity to shape the next chapter of GCC retail real estate, and to innovate for future retail needs, rather than continuing with the traditional development model," said Andy Veitch, Managing Director & Partner and Head of Consumer Practice, BCG Middle East. "Those who act decisively, by choosing a clear archetype, investing selectively in enabling capabilities, and shifting from space delivery to business model innovation, will define the category for the next generation."

BCG said future-ready operators will need to redefine their value proposition, adjust tenant mix, build experiential programming, develop data and analytics capabilities, create retail media offerings and enable better omnichannel integration.

The report also pointed to sustainability, partnerships and organisational change as key areas for mall owners and developers.

Many operators remain tied to traditional leasing models, siloed teams and occupancy-led performance measures, according to BCG. Without more investment in data, analytics, customer experience design and faster decision-making, the transition to new retail models is likely to remain uneven across the region.