Mall mania hitting Kuwait

It is appropriate that the world's largest billboard is announcing Kuwait's largest mall in one of the world's fastest-growing retail markets. Almost 1 km in length, the billboard advertised the first phase opening of The Avenues, a $2 billion mall and the newest entry into Kuwait's rapidly expanding retail real estate sector.

With its local population growing by over 7% a year, and the expatriate population growing by over 10%, consumer spending in Kuwait is set to increase dramatically in the near future. Record oil prices have boosted both GDP and liquidity and while retail spending generally follows GDP growth, the additional social benefits of oil revenue spending in Kuwait have sent consumer incomes skyrocketing.

Speaking with Oxford Business Group (OBG), Raghu Sarma, senior financial analyst at Kuwaiti investment bank Global Investment House, said, "In keeping with the high rate of growth throughout the Gulf Cooperation Council, retail demand in Kuwait too is very high. There is a lot of activity heating up the market, as evidenced by the recent opening of The Avenues Mall. With the diverse array of franchises and brands the new shopping centre is bringing to Kuwait, consumers will be exposed to a new retail environment, which in turn will impact the local retail market."

When it is completed in 2010, The Avenues will eventually comprise over 140,000 square metres of retail space, including the largest IKEA store in the region, 10 cinemas, an entertainment complex, 39 restaurants, four-star hotels, a business and convention centre, office space and a 15,000 vehicle parking structure - all in a former industrial zone.

The sheer size of the development, in a market where 20,000 square metre shopping centres are common, is a clear indication of the growing attention on retail mega-projects within Kuwait. The real estate company behind The Avenues, Mabanee, is planning on pursuing similar projects in the future, according to CEO Fatma al-Bader. And with good reason: while only the first phase has been completed, Mabanee still has over 700 applications from potential tenants for the next three phases. Demand was such that an additional 10% worth of retail area had to be added during construction.

The Avenues will soon see new competition however, as further retail developments come online. Tamdeen Real Estate, for example, is planning a pair of large new entries into the market. The first is 360° Kuwait, a mall with 75,000 square metres of retail space and three anchor stores. The second will be the Mall of Kuwait, which will have several anchor stores and over 150,000 square metres of retail area.

The rapid growth the retail real estate sector is seeing is by no means limited to Kuwait. The turnover for the retail sector in the GCC exceeds $100 billion each year. Ensuring there is sufficient space for the booming industry has made the retail real estate market one of the fastest growing in the world. In the 1990s, shopping centres in the GCC offered around 1 million square metres of retail area, with only 20 international brands present. Since then, floor space has grown to over 5.3 million square metres and over 500 global brands. Furthermore, with the large population growth and the increasingly active tourism industry, the GCC retail area is expected to increase three-fold to over 16 million square metres by 2010 - an increase of over 565% since 2000. In Dubai alone, there is an additional 4.6 million square metres of new shopping space planned over the next four years.

By 2010, according to global real estate firm Colliers International, although Kuwait will still be behind the UAE and Saudi Arabia in terms of overall space, providing only 10% of the supply, it is expected to see a rise of 233% to 1.2 million square metres.

All of this expansion, however, has put a strain on the supplies of land, building materials and labour. With real estate development also booming in the residential and office sectors, courtesy of the region-wide budget surpluses and high revenues, costs of construction have shot up dramatically. The cost of land in Kuwait, for example, has in some cases increased five-fold over 2003 prices, while materials have risen by over 20%.


Jason J. Nash is Head of Research at the Oxford Business Group
(www.oxfordbusinessgroup.com)

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