Dubai: Mall owners in Dubai dropping their rents? Well, not exactly.
But they are still doing their bit to keep their retailer costs down where possible in what is turning out to be another exceptionally difficult year for the sector.
“[Mall] landlords are definitely being forced to help retailers a lot more — in terms of fitouts or offering rent-free grace periods of six months instead of three,” said Jayne Higgins, senior consultant for Retail at CBRE’s UAE operations.
“And purely on the rental side, instead of the standard 5 per cent escalation each year, malls are starting to raise them every third year... or even the fifth. There’s a lot more of that happening, certainly.”
But mall owners, by and large, are stopping short of helping out retailers with capital support, something they had done in 2009-10 just after the recession.
“I know capex [capital expenditure] support was something that was huge some five years ago. But we are not seeing landlords offer money for fitouts or whatever any more, certainly not in the last two years.”
Retailers in Dubai are escalating the issue of high mall rent and how this is playing havoc with their businesses in recent years. The current one is proving even more difficult, with retailers being forced to sustain costly sales promotions over the first four months to even stand a chance of bringing potential buyers to their shops. Without those promotions, they don’t stand any chance, retailers say.
Which is why retailers want mall owners to do their share of some sacrifices. The issue has been escalated to the top levels of the government, with the Dubai Land Department recently confirming a new rental law that would address disputes in the sector. Another recent initiative has come from Dubai Chamber, with the reconstitution of a retail industry grouping with Nilesh Ved of Apparel Group as its head. There too, retail rents will be a key issue the grouping will seek answers for.
For the moment, mall owners might not be willing to meet retailer demands even halfway, but they are still willing to make some adjustments, where in the past they wouldn’t have.
“In terms of malls, I would say in most cases, base rents have not been reduced,” said Higgins. “But the main ones are reducing the turnover rents for some of their tenants — the standard is turnover rental rates are set at 12-15 per cent. Now, there’s more flexibility, at 8-10 per cent.
“On other mall projects, owners are a lot more negotiable than they had been before. Landlords do care about reacting to the market situation.” (Turnover rents are based on a fixed percentage of a retailer’s sales over a set time frame. It is set on top of the base rent.)
Phil Broad, vice-president for the food and beverage division at Kuwait’s Alghanim Industries, says the status quo on mall owner-tenant equations needs changing.
“Landlords have to get realistic — they need to keep you rather than lose you to another mall in town,” said Broad, whose company operates the Wendy’s burger franchise in the Gulf and Costa Coffee in Kuwait. “They cannot always get an automatic increase in rents each time leases are renewed. They may have to decrease rents because there are so many malls being built in this market and only so many shoppers available. If they don’t want to lose a retailer to another mall, they have to decrease rents.
“If malls start moving things around too much, you start to lose loyalty. No mall management wants that to happen.”
Across Dubai’s malls, change is happening in the mix of shops and tenants.
“Landlords are telling us that a lease is about to finish and they want a better operator for that location,” said Higgins. “And that they can drop rents a little bit to find the right tenant.
“But what we are not seeing are tenants leaving in sizeable numbers — I don’t think vacancy levels at malls are an issue at the minute.
“Community malls are becoming that much more popular — the Springs Mall has had a lot of demand and so too the new one in Al Barari. And everyone on the Palm is waiting for The Pointe (a 1.4 million square feet upscale F&B-dominated destination right on the tip of the island) to open.
“It proves there’s appetite in the market. But much depends on the standard of construction and the landlord.”