Retailers in the UAE could succeed in negotiating lower rents with their landlords as e-commerce disrupts the sector, a senior industry figure has forecast.
Patrick Chalhoub, co-CEO of UAE-based Chalhoub Group, told Arabian Business that store rents are likely to drop following years of growth, as retailers scale back their bricks-and-mortar presence in favour of online sales operations.
“Being the leading partner for luxury across the Middle East we have maintained a good relationship with mall owners which helped us in our negotiations and store spaces,” Chalhoub said in an email interview.
“However, even with the ‘new norm’ and the arrival of e-commerce, we are still witnessing a rise in the store rents.
“With the increasing competition, we expect mall operators to review their rents because there is a point when retailers will look at their operating costs and if online makes more sense, something will have to change so that it remains a win-win situation.”
Technology is disrupting retail all across the globe but its impact is only just being felt in the Middle East, where e-commerce has been lagging at 2.6 percent of total retail sales versus 7 percent globally in 2015, according to Chalhoub Group’s 2017 Luxury White Paper, published this week.
However, Amazon’s acquisition of UAE online marketplace Souq.com – the region’s biggest-ever technology acquisition, according to deal adviser Goldman Sachs – marked a turning point for the nascent e-commerce industry.
Then, this week, the $1 billion technology fund set up last year by Emaar chairman Mohamed Alabbar snapped up another UAE e-commerce website, JadoPado.
Chalhoub, who co-heads one of the region’s biggest franchise partners counting Louis Vuitton, Fendi and Marc Jacobs among its brands, said Dubai’s notoriously high store rents – especially in prime centres such as The Dubai Mall and Mall of the Emirates – could drop as a result.
Retail has been one of the only sub-sectors of UAE real estate that has seen rents hold up in recent years, despite declining retail sales. Even in secondary malls in Dubai, rents remained stable on a quarterly basis but increased 9 percent year-on-year in the last quarter of 2016, according to JLL.
Average prime retail rents in Dubai stood at $136 per square metre per month in the second half of last year, a Colliers report says, while in upmarket Dubai Mall, average base rents stood at AED648 ($176) per square foot in the last quarter of 2016, according to Emaar Mall’s first quarter 2017 market presentation.
Rents for new units in the planned extension of Dubai Mall’s luxury Fashion Avenue have been proposed at a hefty AED1,000-AED1,750 ($272-$476) per square foot.
Matthew Green, head of research and consulting at CBRE MENA, said: “Dubai Mall and Mall of the Emirates are perhaps exceptions to the wider retail market sentiment as they have strong levels of demand and low vacancy rates, which has helped to maintain current rental levels. Other locations may offer greater flexibility.
“That said, e-commerce will create an increasingly competitive market and bricks-and-mortar stores will not be able to generate the level of sales as they have done historically.
“Mall operators may be forced to recognise a ‘new normal’ in the retail market.”
In February, the director-general of Dubai Chamber of Commerce and Industry also called on mall operators to reduce their rents to curb a slowdown in retail sales in 2016. Hamad Buamim told media: “We need the mall operators to reduce rents and costs.”
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