Malls re-open in Dubai, but rent relief remains limited

So far, most malls have decided not to charge rentals for the one-month they remained shut as part of the COVID-19 counter-measures. Some are still charging tenants on utility services during the period when they remained shut.

But retailers have pointed out multiple reasons for why they should be granted some relief even after they open for business:

1. It will be some time business activity returns to some semblance of normalcy, and more so, as this period also coincides with Ramadan.

2. Tourists are yet to return, and that will require passenger flights to be reinstated. Some malls are overly dependent on tourists for a sizeable percentage of their sales.

3. Malls will remain open only between 12pm to 10pm, two hours fewer than in normal times. This would apply even on weekend operating hours, for now. Retailers say any rent they pay should be reflecting the lower operating hours. But malls haven’t been giving an ear to this request.

4. There are strict guidelines issued by the Government to limit the visitor traffic within malls to not more than 30 per cent of the mall’s and outlet’s “normal density” limit. That directly translates into fewer visitors to a shop at any given time - another reason why retailers want to see some or any rent relief.

Because of the 30 per cent cut-off, F&B operators want the rent to be done "pro-rata" to the percentage of dine-in area they are allowed to utilize.

5. Retailers are not allowed to hold sales or promotions during Stage 1 of reopening malls. Again, that limits the chance to secure higher sales volumes.

“The malls haven’t come back and said how our rent structures will be for this period - except to say we are paying rent,” said Ashish Panjabi, Chief Operating Officer at Jacky’s Electronics and a retailer with a high exposure to local malls. “However, it is highly unlikely we will come anywhere near our sales targets or breakeven points.

“The way rental structures are, we pay a “base rent”, but if we do better, then we pay a percentage rent, where the mall is the beneficiary of any upside [in sales] we have.

“In these situations, the mall is still guaranteed its income and we are at a complete loss as we can’t operate as per normal conditions but expected to pay rents as per normal conditions.

The malls haven’t come back and said how our rent structures will be for this period - except to say we are paying rent. However, it is highly unlikely we will come anywhere near our sales targets or breakeven points.

- Ashish Panjabi, Chief Operating Officer at Jacky’s Electronics

“Ideally, if the malls want to take a percentage rent when we do better, they should work on a percentage rent now when we are expected to perform far worse.”

Loud and clear

Panjabi’s take on the lack of balance in mall-retailer equation is being repeated by every other retailer in town. And these retailers have no option but follow the mall management’s diktats on opening.

Because even if they don’t open, they will still have to pay from the date the malls are deemed open. And if any retailer does not open, their contract says they will also be imposed an additional Dh2.000 a day as penalty.

On Saturday (April 25), when most malls in Dubai re-opened, the number of stores that opened were in the 70-80 per cent range. By mid-week, malls should have reached the 90 per cent or more mark on store openings.

But even then, the 30 per cent restriction on visitor traffic within malls will be strictly in force.

And there are retailers who keep hoping that mall managements will change their minds on rents. “Everyone supports a phased opening . most malls fully understand the challenges and are ready to listen,” said the CEO at one of the leading fashion-focussed retail groups. “But they are requesting more time to fully understand the impact.”

Abu Dhabi had earlier announced a blanket rental relief of 20 per cent for retail tenants who had entered into, or renewed, leasing contracts between a defined period. Sharjah has also been telling its commercial landlords to offer some easing of rents for the upcoming period.

Not just a COVID-19 imposed problem

Mall owners in the UAE say they had already lowered rents in the last two years, in line with the general softening in commercial rents during this period. It’s a fact that they made made cuts, on average by 15-30 per cent from their 2015 levels.

But retailers counter by saying that the decline in consumer spending had fallen by much more during this period, with online shopping drawing away a significant share of the purchases.

Retailers complain about other dynamics that are taking place… and not necessarily benefitting them. “There has been an imbalance in the mall-retailer relationship for the last 18 months,” said an industry source. “Even in Grade A malls, existing tenants have had no relief in rents.

“But when a new tenant was typically entering a mall, they were paying lower rents than incumbent tenants. The landlords knew they couldn’t get the same rental as the person who had typically just vacated the unit. “This means, an existing tenant was paying more - instead of recognizing loyalty, an incumbent tenant was being penalized.”

Retailers were hoping that the COVID-19 created situation would lead to some favourable changes in mindset… so far, that’s not happening.