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Discuss this article (8 Comments)Rivoli warns of Dubai retail casualties amid high rents
by This email address is being protected from spam bots, you need Javascript enabled to view it on Tuesday, 09 June 2009
MALL RENTS: Retailers in malls including Dubai Mall have complained about high rents. (Getty Images)
Dubai's mall shops are set for tougher times and even closure if landlords continue to stall on renegotiating high rents, the managing partner of Dubai-based Rivoli Group said on Tuesday.
Ramesh Prabhakar told the Reuters Global Luxury Summit in Dubai it would be clearer by the end of the year how retailers react after the traditionally quiet summer months and Islam's holy month of Ramadan, which ends around Sept. 20.
"If we don't talk and come to the table there will be collateral damage," Prabhakar said. "If it remains at this level of business for the rest of the year ... you will see some burnout."
Rivoli is among retailers which expanded rapidly as Dubai's economy boomed in recent years as high oil prices supported strong regional growth rates and helped cement the emirate's position as a regional trade and tourism hub.
Dubai, a member of the United Arab Emirates, has built itself up as a regional fashion capital, boasting more than 40 malls, including one that features an indoor ski slope, another themed on the travels of a famous Middle Eastern geographer and one described as the world's largest.
Like real estate and commercial property, retail rents soared as shopowners flocked to secure space in malls, but unlike real estate, shopping developers have been reluctant to reduce prices hoping to ride the worst of the financial crisis.
"The penny has not dropped yet and everyone is aware of the consequences," Prabhakar said.
A reasonable figure for rental costs as a percentage of the topline figure was between 8 to 11 percent, but anything more would be "difficult", Prabhakar said.
"The majority are talking, the minority are not, but it's the minority we need to talk." (Reuters)
READERS' COMMENTS
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Ibn Battuta
Posted by WHATAN, Dubai on Thursday 11 June 2009 at 10:14 UAE time
Every month there are less shops in this place. If they do not start cleaning and maintenance work, it will soon be deserted by most shoppers, you can hardly find a clean toilet there. When are we getting back the parking that was dug up for the circus?
Posted by WHATAN, Dubai on Thursday 11 June 2009 at 10:14 UAE time
Every month there are less shops in this place. If they do not start cleaning and maintenance work, it will soon be deserted by most shoppers, you can hardly find a clean toilet there. When are we getting back the parking that was dug up for the circus?
Rents and Competitiveness
Posted by Dude, Dubai, United Arab Emirates on Wednesday 10 June 2009 at 20:12 UAE time
This is a key message for Dubai Government, not to developers to step in and control/regulate the market.
Tourism to Dubai is based around 2 segments: Leisure holiday which based around people coming from cold north to Dubai during fall/winter season for a beach package including many recreational and entertainment sub packages. The second type is mostly regional who comes to Dubai mainly for shopping.
These two segments are highly impacted because:
1. High room rates and other costs of the holiday package.
2. Higher prices for items compared to home country.
In both cases the development plan for the building/facility was not aligned with a long term strategy that take into consideration the impact of development cost on the competitiveness of the development which collectively with other development forms the competitiveness of the sector (being hotels or retail).
To make things worst, pricing strategies to large extent are based around the hit & run mentality. Primarily these strategies are driven by unrealistic return on investment and payback periods targets set by developers/investors. Normally these developments are built to stay for long period and therefore the pricing & financial strategies must carefully align with this fact.
To solution for this requires more than just bringing down the rents. It requires a fundamental change in the mentality of investors, developers towards such investments. The solution requires more flexibility in these organizations to adopt to changing economic factors for the benefits of all and themselves being on top of the list.
Posted by Dude, Dubai, United Arab Emirates on Wednesday 10 June 2009 at 20:12 UAE time
This is a key message for Dubai Government, not to developers to step in and control/regulate the market.
Tourism to Dubai is based around 2 segments: Leisure holiday which based around people coming from cold north to Dubai during fall/winter season for a beach package including many recreational and entertainment sub packages. The second type is mostly regional who comes to Dubai mainly for shopping.
These two segments are highly impacted because:
1. High room rates and other costs of the holiday package.
2. Higher prices for items compared to home country.
In both cases the development plan for the building/facility was not aligned with a long term strategy that take into consideration the impact of development cost on the competitiveness of the development which collectively with other development forms the competitiveness of the sector (being hotels or retail).
To make things worst, pricing strategies to large extent are based around the hit & run mentality. Primarily these strategies are driven by unrealistic return on investment and payback periods targets set by developers/investors. Normally these developments are built to stay for long period and therefore the pricing & financial strategies must carefully align with this fact.
To solution for this requires more than just bringing down the rents. It requires a fundamental change in the mentality of investors, developers towards such investments. The solution requires more flexibility in these organizations to adopt to changing economic factors for the benefits of all and themselves being on top of the list.
Deira City Centre the only mall for me
Posted by Geriant, Dubai, UAE on Wednesday 10 June 2009 at 12:16 UAE time
Apart from Deira City Centre and maybe the old part of Burjuman are the only malls in Dubai with any taste of intimacy. Dubai Mall is like a hockey rink, Mall of the Emirates is confusing and without warmth and is too cavernous and Ibn Battuta a monster to park at. Malls are not just for shopping but are micro environments for socialising like old villages were, but the greedy developers don't get it. They should have old-fashioned merchants associations, so the shopkeepers can talk with one voice to management and negotiate from strength. Now all the property promotions have disappeared, there is no proper use of promotional space. Bring a little life to the malls to justify the high rents.
Posted by Geriant, Dubai, UAE on Wednesday 10 June 2009 at 12:16 UAE time
Apart from Deira City Centre and maybe the old part of Burjuman are the only malls in Dubai with any taste of intimacy. Dubai Mall is like a hockey rink, Mall of the Emirates is confusing and without warmth and is too cavernous and Ibn Battuta a monster to park at. Malls are not just for shopping but are micro environments for socialising like old villages were, but the greedy developers don't get it. They should have old-fashioned merchants associations, so the shopkeepers can talk with one voice to management and negotiate from strength. Now all the property promotions have disappeared, there is no proper use of promotional space. Bring a little life to the malls to justify the high rents.
Myopic outlook harming larger good
Posted by Leo Soz, Dubai, UAE on Wednesday 10 June 2009 at 11:09 UAE time
The overwhelming enthusiasm (call it greed) of Dubai malls to cash in on the boom time by charging abnormal rents is seriously city's competitive advantage and its well nurtured image of regions's shopping paradise. In order to absorb rents and to foot the ambitious marketing expansio, merchandise has been made more expensive. Not long ago, Dubai was known to be a very competitive shopping location for tourists and transit passengers. Today, many of the business hubs and neighboring countries are able to offer better bargains than Dubai. Then, how long can we expect buyers to flock to Dubai and make a beeline to our malls. The current economic climate alone can not be blamed. I guess the business stake holders (malls, suppliers and regulatory authorities) need to wake up to the evolving business eco-system in the region and put aside individual vested interests. Consumer is surely exercising his better judgement, while the stake holders hope that the storm will blow over with out costing them any loss in revenue.
Posted by Leo Soz, Dubai, UAE on Wednesday 10 June 2009 at 11:09 UAE time
The overwhelming enthusiasm (call it greed) of Dubai malls to cash in on the boom time by charging abnormal rents is seriously city's competitive advantage and its well nurtured image of regions's shopping paradise. In order to absorb rents and to foot the ambitious marketing expansio, merchandise has been made more expensive. Not long ago, Dubai was known to be a very competitive shopping location for tourists and transit passengers. Today, many of the business hubs and neighboring countries are able to offer better bargains than Dubai. Then, how long can we expect buyers to flock to Dubai and make a beeline to our malls. The current economic climate alone can not be blamed. I guess the business stake holders (malls, suppliers and regulatory authorities) need to wake up to the evolving business eco-system in the region and put aside individual vested interests. Consumer is surely exercising his better judgement, while the stake holders hope that the storm will blow over with out costing them any loss in revenue.
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