Dubai retailers struggle as mall rents pinch

Experts warn of two-tier retail market as emirate’s mega-malls move to hike rents
Dubai retailers struggle as mall rents pinch
Retail accounts for about 30 percent of Dubais GDP
By Elizabeth Broomhall
Sun 20 Nov 2011 09:19 AM

Dubai retailers are gearing up for their toughest year ever in 2012, as soaring rents in the emirate’s mega-malls and ailing tourist numbers from Europe threaten to squeeze profits.

Smaller stores whose leases in Dubai Mall or Mall of the Emirates are due for renewal could come under the most pressure, experts say, as landlords move to raise already high rents.

“[Next year] will be the toughest year ever for retailing in the Middle East,” said Hasit Kakkad, retail manager for Matalan in the region. “You will see less European travellers and tourists with the squeeze on Europe, [and] in the big malls, the rents will always go up.

“I know that they have been [increasing] and I don’t think that will change.”

Second-tier mall operators will bear the brunt of any decline in tourist numbers, as struggling shop owners cut their losses to focus on outlets in booming centres such as Mall of the Emirates and Dubai Mall.  

“In the secondary malls, the rents are coming down quite dramatically. Some of [these] malls are really struggling. I know for a fact that a lot of malls have reduced rents prior to going into negotiations with retailers, just to sweeten the deal before they get to renewals,” Kakkad said.

“If you drive around Dubai you will see that a lot of malls that were once the centre of attention have actually lost their appeal a bit.”

Dubai, the Gulf’s shopping hub, has added more than one million sq m of shopping space since 2006. Retail accounts for around 30 percent of gross domestic product in the emirate, which is home to about 40 shopping malls, Standard Chartered estimates.

Rents in the emirate’s largest malls are among the Middle East’s highest, Colliers said in September, deterring smaller brands from entering the market.

The glut of prime mall space has seen older malls suffer, with experts warning the emirate is on track to develop a two-tier retail market – leaving landlords in smaller malls struggling to lure tenants and consumers.

 “Rents will remain consistent with the popularity of the mall,” said Stuart Gissing, a retail property analyst at Colliers. “The leaders of the pack will be able to maintain their levels or indeed increase rents, [and]... it may be said that these leading malls will create a further gap in the rentals asked compared to the less popular and secondary centres.”

Ibn Battuta, the midmarket mall operated by Nakheel, said it had no plans to review rents amid the tough economic climate. The mall has added 50 new tenants in the last year, with a further 25 brands still scheduled to open, said Adnan Hegrat, managing director for retail at Nakheel.

 “We have no plans to decrease the rent at all,” he said. “Our footfall has increased from 40,000 [customers per day] two or three years ago, to 63,000 today.

“Malls only decrease their rents when they’re in bad shape.”

Retailers in Dubai said mall landlords are insensitive to market conditions and rarely amend their lease rates to reflect the tough economic climate.

“What is happening is not good, it is not good at all,” said Mohammed Al Fahib, CEO of Paris Gallery. “The malls can put the prices at what they want. There are no regulations to protect retailers from price increases when the market is down. Smaller malls are more flexible because they have to be.”

Those who have made an investment in a shop have no choice but to stick it out, he said, so that many only break-even come the year-end.

Mohi-Din BinHendi, president of retailing giant BinHendi Enterprises, said the rental situation is unlikely to change, with the larger malls and luxury brands at an advantage.

“To be very honest, nothing is going down [in] the big malls,” he said. “The rent could go up. As the demand is really high on these malls, the probability is that it could.

“There are areas where there [could] be shops available [for lower rents] but the very prominent brands will not go into those areas, they need prime locations. The smaller retailers might accept locations like that.”

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