We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Sun 20 Nov 2011 09:19 AM

Font Size

- Aa +

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

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.”

Arabian Business: why we're going behind a paywall

For all the latest retail news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Anonymous 8 years ago

When Ibn Battuta says they have 50 new tenants and another 25 still to open, the question is "What happened to the old tenants?" My guess is, the business was so slow in the mall, the footfall probably much less than the numbers being stated, that the retailers closed shop and walked away from Ibn Battuta.

Mall of the Emirates and Dubai Mall are #1 but not everyone in these malls is successful. Dubai Mall has lots of dead zones like the jewelry area (Gold Souk?) in the middle of the mall and the highest retail floor seems to be very slow. All the other malls...Ibn Battuta, Festival City, Mirdif City Centre, Al Ghurair, etc. are second tier at best.

British Expat 8 years ago

I think there is a major misconception in Dubai that its cheaper for shopping than Europe. Well, I can asure everyone, that is not the case. Infact for clothing UK is atleast 20-30% cheaper than UAE and thats after you pay the sales tax (VAT). Which means that retailers are adding around 40% profit for their items in the UAE. Thats just pure greed! and soon it will catch up with them as tourist numbers dwindle in Dubai. I have been living here for 4 years, and I hardly ever buy cloths from UAE, i wait till i go back to UK and buy them in Sales twice a year, which usually means I pay 70% less for the same item in UAE. As markets open up in China and India, Retail tourists number will drop further. In my opinion, Govt needs to take a long term view on how to attract more tourists, and one action should be to control the retail prices , they have to be less than Western Europe for UAE to be attractive destination. Retailers need to learn to live with margins of 5-10% max.

adnan hegrat 8 years ago

in an answer to Anonymous ,the reason for the new shops,is the mangement decided that the old one is no more compateble with the mall plan,eather for being lost their market share or because the mangement decided to bring to its mall new generation of retailers and also they want to upgrade the tenants mix,this is the nature of shopping malls and retails, alwayes sifting alwayes looking for the new and popular brands. to satisfy customers demands and for Anonymous to make such judgment indicate his lack of knowledg of how retailes dynamic works .

John 8 years ago

@ British Expat - could not agree more. I tried saying the same thing for years. Every time the famous response "if you don't like it, leave". Guess what, we did and we won't be going back.

Original Joe 8 years ago

Sorry Adnan...not buying it. Hmm, where to start..."upgrade the tenant mix"? Does that mean Ibn Battuta made mistakes the first time around with who they chose as tenants? "Satisfy customers demands"? I am sorry Adnan, but 2 of the busiest casual dining restaurants are PF Changs and Chili's, neither of which have been crazy enough to open locations in Ibn Battuta Mall, correct? My point, "customers demands" have very little to do with the fact many retailers want no part of dead malls like Ibn Battuta. Retailers don't want to open brands in locations which are risky or proven not to be "A" malls. As far as the "nature of shopping malls", again wrong Adnan! Look at the turnover of tenants in SUCCESSFUL malls like Mall of the Emirates. The turnover is low...then look at the tenant turnover in unsuccessful malls like Dubai Festival City and Ibn Battuta...HUGE TURNOVER! Shopping malls which are not busy care about 1 thing more than anything else...finding tenants willing to PAY THE RENT!!!

Demorlaized Retailer 8 years ago

The reason rents are not going down in the main malls is due to pure Landlord greed! Unlike most landlord-retailer relationships worldwide, which refelct partnerhsip & understanding of the economic cliamte, spending patterns, & the importance of retail mix, landlords are just looking for the next takers for their extortionate rates, regardless of whether those tenants will have to end up closing a year or 2 later...cause there is always another taker! This is simply a pure machiavellian way of doing business. You only have to look at all the tenants who were forced to open under threat of penalties at malls such as Dubai Mall & Dubai Marina Mall when they were nowhere near acceptable occupancy, were charged extortionate boom time rents when the world was enterting the worst recession known in over a 100 yrs & were forced to incurred huge losses. The tenants leaving malls are sadly the ones that supported them in the first place. Landlords are simply bitting the hands that fed them.

Siddharth 8 years ago

Good Point Adnan
there are always 2 sides to a coin

Baswaten 8 years ago

I used to make a big shopping for my family whenever I travel each year to pay them a visit, but surprised to find the prices of clothes in UAE are almost the same to Toronto. Someone has to wait for pre-Christmas Sales here and you can't believe the slashed prices when they say 70% reduction Sales, they mean it with good quality of materials unlike the Chinese made in UAE with 70% reduction at the window display but inside it's a regular price . To ease the rent pressure to the outlet owners, the Dubai Government has to step in to take the burden of paying a one year rent to all outlets in major Malls to boost the economy.

Mall Guy 8 years ago

I've been in the mall business here for eight years and there is one simple truth - good retailers have done, and always will do, outstanding business wherever they are. People shop in good stores no matter where. Really.
Poor retailers will always blame a mall. Truly great retailers, like Landmark, blame no one.
The brands in UAE malls are represented by local companies so you have two areas of risk before you get to a mall - you can represent a dying brand (fashion changes) or the local partner can be poor (most often). I have witnessed over the years great brands fail, to be replaced by new brands that thrive in the same location.
The mall as scapegoat - you know what? No one has a gun to your head when signing a lease, and it's very true to say there is ALWAYS another good brand around the corner wanting in.
Are malls greedy? Well, it's very good business, backed by huge capital risk and requires a very long term vision - to the victor the spoils.

Lee 8 years ago

I agree, I always take an empty suitcase on my annual trip back to UK. Everything is so much more expensive than UK and usually also out of date. This is something I think most European tourists discover to their suprise when they visit the "tax free" haven of Dubai and why you rarely hear any say they will return. And before I get the standard response remember tourism is dubai's life blood.