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Full speed ahead for MENA retail

The Pointe at Palm Jumeirah, Dubai

Due to a unique combination of favourable market fundamentals, the MENA region has emerged as a prime spot for global retail growth. We take a look at current market dynamics.

March 2015

The Middle East and North Africa region (MENA) is gaining prominence on the retail world map as it is increasingly being targeted by global retailers for their international development. In 2013, MENA has topped global retail growth and 2015 looks to be no less exciting for the region with a number of markets poised for significant growth.

Andrew Williamson, Head of Retail, JLL MENA, says growth in some of MENA’s retail markets is driven by a variety of factors. First of all, and most importantly, are increasing tourism and a growing population; “these are the two biggest drivers, with population growth being most important in Saudi Arabia and Egypt and tourism being most important in Dubai,” Williamson says.

Secondly comes the oil and gas sector, particularly important in the UAE, Saudi Arabia, Iran and Kuwait being the top oil producing countries in MENA.

In addition to this, Williamson mentions the growth of the hospitality sector as further driver of retail growth, particularly in the UAE. “Operators and developers are trying to increase availability of rooms pre Expo 2020. For example, Starwood has announced that it will open 10 new properties in the UAE in 2017 alone,” the JLL expert says.

Then there is also the number of mega developments the region is renowned for, “including The Landmark in Riyadh, King Abdullah Economic City in Jeddah, Dubai Design District, Mall of the World and Dubai Canal Development in Dubai, as well as Saadiyat Island in Abu Dhabi,” Williamsons says. All of these developments drive or are expected to drive the retail sector of their respective locations and surrounding areas.

Lastly, there is the World Expo 2020, which, according to Williamson, will improve investor confidence and create a gateway for exposure for investments to other MENA countries beyond the UAE where the Expo is held, with “the hospitality, logistics and retail sectors being the major winners in UAE.”

Current & future retail stock

In terms of current and future retail supply in MENA’s major markets, JLL data suggests that Cairo will experience the most significant retail growth between 2014 and 2015.

“In terms of supply, Cairo is experiencing significant growth in the MENA retail sectors with 619,000 sqm of retail expected to come into the market in 2015, generating a 52% increase of retail GLA from the 1.2 million sqm of GLA in 2014,” Williamson says.

Now that political stability has returned and economic reforms are underway, experts tip Egypt as a key market for retail growth. “As the economy improves, the Egyptian retail sector is set to witness an influx of international brands and the expansion of existing retailers. For example, Majid Al Futtaim is planning to continue with the development of Mall of Egypt, 165,000 square metre mall in 6th of October City, which is expected to be delivered in 2016 and which will include over 420 retail outlets,” Williamson comments.

Second in terms of retail growth in MENA comes Riyadh, whose retail sector is also expected to experience significant growth with a 17% increase, and which will add 241,000 sqm of retail GLA in 2015, so JLL.

Third place is Dubai with a 9% annual retail growth from 2014-2015, followed by Abu Dhabi with 5%. Dubai is still home to the most retail stock in MENA with a current supply of 2.9 million square metres, closely followed by Abu Dhabi with a current supply of 2.5 million square metres (JLL).

Worth mentioning is also Bahrain, which, albeit being a small market, is experiencing positive growth on the retail front. “The retail sector has generally outperformed other asset classes during 2014, with a rising number of new centres being delivered and launched,” says CBRE’s Q4 2014 Bahrain MarketView, released earlier this month. The report points out that there has also been a growing trend for provision of community retail shopping complexes, which provide convenience and services to residential areas.

“Despite Bahrain being a small market geographically, demographics and traffic congestion have led to a need for local retail, as well as food and beverage options. This shift has spurred the progress of new developments at Muharraq, Isa Town and Riffa,” says Steve Mayes, Director, Middle East Research, CBRE Bahrain.

According to the CBRE report, the opening of Seef Mall Muharraq, in early 2015, has enjoyed significant success to date with a high percentage of the mall pre let. Currently under development in Bahrain is also Dragon City, a China themed mall with 780 stores and a GLA of 55,000 sqm.

 

Major developments

Renowned for its large scale real estate developments and masterplanned communities, the Gulf region is home to several retail schemes which significantly impact on their respective retail and hospitality landscapes.

In Dubai, these include Mall of the World, which will feature the largest mall (8 million square feet), largest indoor theme park, 100 hotels, cultural theatres, wellness resorts, a temperature-controlled pedestrian city, and is expected to attract 180 million visitors annually, so Williamson. “Dubai Mall is one of the popular malls in the UAE and currently over trading,” Williamson adds, saying that “as more retail supply slips in, the future retail supply is likely to be absorbed by the increasing retail demand expected with the increasing population and tourism.”

In the UAE capital, Saadiyat Island, Reem Mall and Yas Mall are expected to alter the Abu Dhabi demand and supply drastically, Williamson explains. “The leisure, retail, entertainment and F&B component for Saadiyat Island for example is unique to Abu Dhabi and is predicted to benefit from the growing Abu Dhabi population and increasing tourism,” he says.

Another major development worth mentioning in the region, according to JLL, is The Landmark in Riyadh, Saudi Arabia. “The Landmark project is unique to Saudi Arabia – a mega mixed-use development encompassing approximately 180,000 sqm of retail, 103,000 sqm of office space, 128,000 sqm of serviced apartments, upscale 5-star hotels, a medical spa, premium luxury retailers, and a climate controlled indoor boulevard.”

The rise of e-commerce

Although online shopping is not (yet) as popular in MENA as it is in other global regions (particularly the U.S. and Europe), it is on the rise as an addition to the physical store.

“E-commerce is on the rise in the MENA region, where it is expected to grow to AED 735 billion [USD 200 billion] by 2020. However, the physical store concept is still popular and dominant in the region and is expected to continue to be as major retailers retain their physical presence but look to establish online presences,” Williamson explains.

Furthermore, the growth of e-commerce is expected to impact on the logistics sectors region-wide which will see increased investment.

“As the popularity of e-commerce increases and consumers expect faster response times, investment in vehicle and shipping delivery will increase, as well as the importance for organised and efficient logistic networks.  Retailers will need to make use of Big Data systems to track consumer product preferences to stock merchandise in advance in the respective cities to decrease delivery times,” Williamson further explains.

Maintaining a competitive edge

Consumer shopping habits change over time which has implications for those involved in the retail sector. Commenting on the challenges this poses to investors and those involved in the retail sector in this region, Williamson says:

“The major challenges that are likely to be faced by investors and those involved in the retail industry would be the need to continuously invest in innovation to maintain their competitive edge in the retail industry. This can be seen right now in Dubai which is working to further outdo itself by creating unique developments (such as Mall of the World) in response to changing consumer preferences.

“Additionally, as the world goes through technological advancements, and as consumers become more tech savvy, the investment in the integration of the retail infrastructure and technological world will be critical. Retailers will also be required to make use of omni-channel retailing to maximise sales and exploit all channels of retailing.”

Exciting times for the MENA retail industry.

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