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Sun 18 Jan 2009 01:50 PM

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High rents 'not to blame' for mall prices

EXCLUSIVE: Dubai's mall rents in line with Europe and US, insists CEO of Outlet Mall.

High rents are not the reason for the rising cost of shopping in Dubai, the head of one of the city’s mall owners has said.Mohammed Khammas, chief executive of Al Ahli Group, which owns the Dubai Outlet Mall, said rents in Dubai’s malls are largely on par with the US and Europe and that retailers are partly to blame for price tags that are up to 50 percent higher than in the West.

“They don’t exceed the rates that you would find in any metropolitan city in the States,” he said.

“There is a big range within the city. You have strip malls, like the ones on Jumeirah Beach Road. Our development is an outlet centre, which targets value retailers and value shoppers, so the rent there is considerably lower…but it’s still in line with rents for outlet centres in the States.”

Dubai retailers have claimed high rents in the city’s malls are stoking their prices.

In an article published on Friday, shop owners told Arabian Business that soaring rents were squeezing profits while tourist spend in many stores has been almost halved.

A confluence of factors is to blame for Dubai’s relatively high prices, including higher profit margins due to lower volumes than in bigger markets, Khammas said.

“You would need a certain volume to drop your profitability margin,” he said.

Retailers who hold up to 20 or 30 franchises may also have struggled to market their brands appropriately and to manage their inventories efficiently.

“You have to manage your stock, your inventories and your marketing campaigns according to the consumer base you have. I don’t think we have come to the stage where we are able to talk to our end user,” Khammas said.

“[Retailers] have kind of overwhelmed themselves and they’re not speaking to all of their customers at the same time. They’re trying to but they’re failing, because they need separate managements.”

Going forward, franchise holders will become better at this, he predicted.

Labour costs have also risen on the back of previously booming economies in emerging markets and new laws requiring medical insurance costs to be borne by the employer.

“The big retailers dictate the rents because the success of any mall depends on their presence,” Khammas said.

Elsewhere, retail rents have proved resilient to the economic slowdown.

CB Richard Ellis (CBRE), the world’s largest commercial real estate services company, said on Sunday that retail rents in London’s West End and in most other European capitals were unchanged on the year despite a slump in property prices.

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Joe 11 years ago

I am not sure which malls Mr. Khammas is referring to in the States but he is incorrect at least regarding rents charged to restaurants. As a restaurant professional from the U.S. I can tell you that rents for casual dining can range anywhere from 2% to 7% of sales in the U.S. on average depending on the sales for a particular restaurant location and the terms of the contract. Many U.S. brands will not accept a location if when reviewing sales and expense projections the rent will be above 6% of sales. During my many years in Dubai I have seen the rates for restaurants sky rocket. Not only are base rents high but some malls sign deals where a percentage of sales is paid if sales hit certain targets. This can be anywhere from 12% to 15% of sales. The targets are not necessarily "high" so no one should assume just because these targets are hit that this translates into big profits for restaurants. There are expenses that need to be paid above rent including royalties, salaries & benefits to employees & managers, food & beverage costs, DEWA, supplies, repair & maintenance of equipment, etc. When paying ridiculously high rents something has to give but what? Restaurants can save money by having lower quality management or staff, less management & staff which will result in bad service, or maybe cut back on food quality. Some do all of the above while also increasing prices 10% to 15% higher than U.S. prices, sometimes more. And let's not forget the 10% to 15%service charge on top of everything else, most of which goes to the restaurant with maybe 2% of the 10% or 15% shared among employees. Restaurant rents in Dubai are way over the top. Many U.S. companies want to be in Dubai because of the exposure but once they come over and talk to some of the landlords they realize it is difficult to be profitable. Landlords are not looking to partner with restaurants to create a win-win relationship. They are looking for whoever is willing to write them a big check and pay the high rent! Some restaurants have done well while others struggle. I cannot speak for businesses such as clothing retailers and the like but if their rent factors are anything like what restaurants pay, then they have no choice but to charge high prices in hopes of making a profit.

Sanjay 11 years ago

Come on! Rents are any day a major chunk of a retailers fixed cost... pls i cant believe you are defending it.

Arys 11 years ago

Tell Me something!! What do you mean by mall rents being priced at par with US & Europe? Is Dubai even comparable to US & Europe!! Dubai, mall rents are a joke in itself. NOt only are they priced higher but landlords are dumb to even think that Dubai will be comparable to US & Europe. These developed countires have proper infrastructure, laws, governance, and most of all mass transit system that Dubai is years behind. I repeat several years behind. In addition, Dubai Population, in fact UAE population is one tenth of US and Europe's any metrpolitan City. At this equation I feel Mall rents should be one tenth there present values.....but its a kingdom......Never say only follow!!!

DG 11 years ago

Please stop with these selective comparisons, Did you compare the cost to build and cost to operate your mall with the US & Europe? Do you pay you team US salaries? Did you notice the average salaries of your customers or size of population to compare with the US? Then why is it only the rent that should be compared. I think most of the people who comment here are bright enough not to fall for these silly comparisons. You know very well what the major mall owners are doing, squeezing the retailers until we get the situations where the prices are over inflated as we have now. I ask all the mall owners why 2x3mtr kiosk should the cost the same as renting a 3-4 bedroom villa? The only reason is greed, the same greed that has put Dubai on this road crisis and you should not be defending this when your mall is one of the more cost effective out there.

Dan 11 years ago

Unfortunately there is no win-win culture in the Mideast business. Here business means: “how much can I con this guy? How much dose he have?” It’s like there is no tomorrow. You can find it in all aspects of business, from how mall owners treat retailers to car dealers to banks and how landlords treat tenants. Just take all you can and no thoughts on that he will lose the customer for ever. JUST NOW AND HERE. That is why Dubai is doing everything wrong now to recover. They just think it’s bad so how much can I grab right now. This is the mentality and it will not change because of the bad times. That’s why they implement very different ways to deal with economic problems elsewhere compare to here.

Dan 11 years ago

Arys, I think they actually think this is US or Europe or Hong Kong or so. This is a big reason why people here don’t see the reality and don’t take correct actions to fix the problem. Who on earth put this idea in their head. I mean we all want to be on the top but at least inside we know the reality.

Sanjay 11 years ago

Dubai population is too small to claim such high rents. In any case, i can bet my career that in months (not years) to come, things are gonna change for the better - as retailers and tenants overall will simply refuse to accept higher rents - making the landlords consider reducing the rents big time. Its already happening in Jum Lake Towers shops, offices and apartments - many of which are yet empty. It will come into malls as well very soon. It has to.

Andy 11 years ago

The article mentioned nothing about what the current mall prices in Dubai are. What I do know is that kiosks in the malls are running at around 20,000-25,000 Dhms. per month which is pretty crazy just for a kiosk. Comparing prices of rental in the US along with Europe to those in Dubai is beyond ridiculous. Minimum wage in California is almost $8 per hour and what is it for Dubai? If the government wants Dubai to succeed then they need to drop their rental prices in the malls and reconsider their monopoly policies in the UAE or drop prices on all their government controlled telecom fees. In my opinion I don't see Dubai succeeding unless the government drops all prices on related to tourism. How many people out there in today's financial turmoil are going to fly to Dubai, pay $300+ on hotel,$50+ visa Fees, and $50 in daily taxi fees? If rental fees don't come down in Dubai along with other government controlled fees Dubai will end up like Hawaii is. People will or may visit once but will not return after. When their stock market got inflated it crashed after, when their real estate prices got inflated (They're crashing now) and I believe their tourism industry wil be the next to crash due to price gouging in hotel rates, retail rates due to rental prices, public transportation prices and telecom prices.

MKM 11 years ago

Well, it seems that mall owners believe prices are fair, and business owners believe they are over the top. I would expect business owners would not sign up new leases and many of them would go out of business if volume demand does not materialize. This will no doubt bring rents down... If business owners are still in business even with the apparent decline in demand, then maybe rents are not excessive. At the end of the day, the rules of supply and demand will prevail...

Paul Ransted 11 years ago

Hey its not just the Mall Rents but the accomodation for Staff and the other fixed costs. So I would say Rents are a very high factor in this....just like the rest of Dubai the costs are passed on until they cannot be passed any more.