By any measure, retail is a decent metric as to the health of an economy. Footfall and sales give a strong indication of the consumer appetite of both the national and tourist population, and nowhere is this currently more important than Dubai. As the emirate leans away from real estate and the finance industry, the underlying virtues of tourism and transport have become ever more vital.
From that perspective, Peter Walichnowski, CEO of Majid Al Futtaim (MAF) Properties, has his finger on the pulse more than most. Not only do his three malls in Dubai give a great pointer to where the emirate’s economy is now heading, but he also has an expansion plan in place across the region that seems to suggest that retail has an exceptional future.
As head of the firm that developed Mall of the Emirates, Deira City Centre and Mirdif City Centre, Walichnowski thinks that the data suggests that the market is recovering.
“In 2009, we saw a drop, as did all of Dubai, but in 2010 we’ve seen a stabilisation of foot traffic and sales inside our three malls,” he says. “And we’re predicting some growth next year to start coming through in the sales — it’s single digit growth, but it’s growth nevertheless.”
Mirdif City Centre is the group’s latest offering to the Dubai market, launched with typical hype in March this year. Although one million people visited the mall in the first three weeks of trading, Walichnowski is keen to temper near-term expectations for the site.
“A typical profile of a big mall is that it takes twelve to eighteen months to find its market position. People have to get used to going there, there’s a big wow factor when it first opens and then they go back to normal patterns, do some side trips there but eventually they find their niche,” he says. “Mirdif won’t be in its full stride until the middle of next year, I guess, as an established mall.”
Needless to say, Mirdif isn’t the only recent addition on the Dubai retail scene. The last couple of years have also seen the entry of Marina Mall and the mammoth Dubai Mall. Given the economic circumstances, it has been difficult to tell with the drop-off in sales at MAF Property locations was due to the recession or the opening of Dubai Mall, but the CEO believes that the two biggest retail spots in the emirate have relatively complementary offerings.
“Dubai Mall and the Burj Khalifa helped create another destination, and gave tourists another reason to come to Dubai. All the statistics I see on tourism show that the sector is going up again, and that more people are coming here,” he says. “People who come here for a week will often spend one day in Dubai Mall and one day in Mall of the Emirates. It’s not one or the other — it’s both.”
However, Walichnowski doesn’t believe that the time is right for the much-vaunted Mall of Arabia, however. He thinks that if it opened next year, it would be “too much too soon”, but then points out that there’s been no market news about the City of Arabia project in recent times. The Ilyas and Mustafa Galadari Group-run development shows little sign of progress, despite promises from executives last year that the Mall of Arabia would be up and running by the end of 2010.
Outside Dubai, MAF Properties is also considering Abu Dhabi, which one consultancy has said could soon overtake Dubai in terms of the amount of retail space on offer. However, the lack of space on offer is putting the brakes on the firm’s ability to tap that market.
“It’s very difficult to get the land that suits us,” says Walichnowski. “We’re very cautious and specific about what we will do and what we will not do and we haven’t yet come up with a site that matches our requirements. If it does, great, but if it doesn’t, we’ve got a big enough agenda anyway. It’s nice to have, but it’s not a must have.”
In terms of new malls throughout the region, MAF Properties certainly has its hands full. The firm will add another location in Fujairah by the end of the first quarter of 2012, to bring its total of UAE malls to four. But the real focus appears to be on the Levant and Egypt.
Other than the Fujairah mall, MAF Properties will bring three major shopping centres online by the end of 2013; Beirut City Centre in Lebanon, the one million sq m Khams Shamat development in Damascus, and the Mall of Egypt in Cairo. Walichnowski says that these four are all either at the earthworks or full construction phase.
Syria — in particular — is a country that the company has found especially appealing, due to consistent expansion plans and the relatively lack of competition. MAF Properties is being joined by other Gulf companies, such as Saudi Binladin, Qatari Diar and Emaar-IGO Group, all of whom are seeking to take advantage of planned multibillion dollar infrastructure expansion projects. The CEO says that the growth corridor outside Damascus — where MAF Properties is planning its mixed-use project — is currently the subject of a series of giant masterplanned communities.
“It’s the owner [Majid Al Futtaim]’s belief that Syria is coming towards the west rather than receding away from it,” Walichnowski points out. “It’s also underdeveloped with regard to modern real estate. If you go to Damascus for example, there’s demand for all kinds of real estate because the city itself is quite constrained. So it’s a big expansion corridor for Damascus and if you look at the pent-up demand for retail, it’s a fairly obvious conclusion to come to.”
Another vital market — and one in which MAF Properties has a significant amount of local experience — is Egypt. The firm opened its first mall in Cairo with a Carrefour anchor in 2002, adding a second in Alexandria in 2004. Recent relaxations on government restrictions on imports and punitive taxes have left the country as something of a honeypot for ambitious retailers.
“Off the back of those changes, other developers — mainly Egyptian — who were doing residential then started to look at doing retail in Cairo,” says the CEO. “As a result, you see half a dozen malls on the drawing board – we have one of them and we believe with our experience, track record and relationship with the retailers we will obviously come up with a great mall. The market is big enough; you actually can build ten malls in Cairo, it doesn’t need to be one.”
Beyond those four malls, the next pipeline of work will see another mall in Doha, more sites in Cairo, another site in Damascus and one in Oman.
“The way we do our business is that while we are constructing a portfolio mall, we’re looking for the next pipeline,” says Walichnowski. “We may look at 10 things, and maybe three or four come out. But it’s clearly a focus on Levant, Egypt and of course the UAE.”
Saudi Arabia is also in the group’s sights, although Walichnowski admits that this is more of a long-term proposition.
“We have a strategic view on Saudi that one day we would like to have two or three malls there,” he says. “But it’s not in the current pipeline, because of a number of things including the appropriate site, being confident on the market at this point in time, our funding requirements etc.”
In terms of expanding further afield, the CEO says that the company has no real plans for Kuwait — except through its joint venture with MH Alshaya’s The Avenues mall where a group subsidiary operates the Magic Planet children’s attraction — and it will also not be taking up residence in Turkey, as the country falls outside its MENA-specific target area. And while MAF Properties had in the past initiated a joint venture mixed-use development in Libya, that project has not progressed, so that market is not seen as a priority either.
In terms of the funding pipeline, Walichnowski admits that it is harder now than it has been in the past. But of the $3.5bn required for expansion, all of that is now covered, and the company sees a bright future in its sights.
“We wouldn’t commit to projects unless we had visibility on the funding. So it’s covered, both in terms of internal resources, equity, corporate borrowing or debt, and also project finance, on the ground in the countries where the projects are,” he says. “We have a good covenant, our business is very robust and we have a good set of books. Banks will still lend, but you have to have a good covenant and the margins on borrowing have gone up. So yes, we can get funding, but it’s more expensive than it was.”
Abu Dhabi is set to overtake Dubai’s saturated mall market in the next five years with one of the heaviest concentrations of retail space in the world, a report has said.
Retailers are increasingly focusing on the UAE capital, where retail space is set to swell some 80 percent to more than 1.8 million sq m by 2015, said property consultants Cushing & Wakefield, accelerated by a slew of new malls.
By contrast, Dubai will gain little new stock after construction on several malls was suspended following the emirate’s real estate crash, the company said.
“With limited pipeline supply in Dubai and Abu Dhabi shopping centre supply set to more than double, the focal point for retail in the UAE may well be set to shift.”
Abu Dhabi currently houses 936 sq m of retail space per 1,000 people, significantly lower than Dubai’s 1,385 sq m.
“Abu Dhabi’s retail market is undersupplied,” the report said. “The average occupancy rate of malls in Abu Dhabi is approximately 90 percent.”
By comparison, vacancies at Dubai malls are on the rise as retailers seek out new real estate at the expense of older shopping centres, which struggle to lure consumers.
“Despite strong tourism and a projected rise in consumer spending, there has been an increase in mall vacancies, particularly in tier two locations that do not attract the same footfall as the ‘mega malls’,” the report said.
Dubai’s reliance on luxury brands may also threaten the health of its retail sector, it added.
“Dubai has a staggering number of shopping centres devoted to high-end consumers. More localised centres that create or enhance communities are expected to fare much better.”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.
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