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Thu 6 Nov 2008 08:49 AM

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Spending slowdown 'could hit Dubai Mall targets'

Analysts says stronger dirham, job fears, rental costs could all play part in less spending power.

Growth in consumer spending may not be able to keep up with the amount of retail space coming online in The Dubai Mall, industry observers have told Arabian Business.

The spending power of some tourists in the emirate has fallen drastically as the dirham has strengthened while falling property values in their home country and sharp declines in the stock market have added to their financial woes, analysts said.

UK pounds will now get British tourists, who account for up to a third of the country’s visitors, roughly 20 percent less than it did two months ago.

Meanwhile, some expats in Dubai will also be tightening their purse strings as a result of soaring housing costs in the emirate.

“The purchasing power of many sections of the population has at best been stagnant, but often declined, because of higher rental costs,” said Eckart Woertz, economist at Gulf Research Centre.

Obtaining a credit card has also become more difficult for many people, he noted.

Concerns over potential job cuts at some of the international firms operating in the emirate could also deter people from splashing the cash, according to Shuaa Capital retail analyst Laurent-Patrick Gally.

“They might be starting to be slightly worried about their jobs depending on which sector of the economy they work in, specifically if they work in the finance industry,” he said.

Should expatriate spending be hit by wavering consumer confidence, it is discretionary products that are likely to be affected and not the staples, such as basic food ingredients.

“I think all high priced items that are not a necessity will suffer a little bit,” Gally added.

At the end of 2007, there were 1.5 million square metres of gross leasable area (GLA) in Dubai malls. This will double to 3 million square metres by the end of 2010.

A mall’s success is usually measured by its foot fall, an industry measure for the number of visitors it attracts.

Gally believes this may remain at high levels despite all the retail space that is coming on stream. It is the average spend per head that could suffer.

But bosses at The Dubai Mall insist they are confident the huge shopping centre will be a success.

The continued influx of international brands into the region has underscored the potential seen by western retailers in Gulf markets, and The Dubai Mall is sticking to its forecast of 30 million visitors in its first year.

“The growth in GDP will translate into more purchasing power in the region, even the tourism has not been affected – we are seeing a huge number of tourists coming to the region,” general manager Yousif Al-Ali said at the opening of The Dubai Mall on Tuesday.

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mohammad UAE 11 years ago

They could not have picked a worse time than this to open this huge mall. Again, things should stablise in the coming 6 month or so