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THE RISING PRICE OF RETAIL

Shopping malls continue to expand and open in Dubai, yet retail rents continue to soar. Is the market about to reach a dangerous tipping point whereby smaller retailers get priced out?

May 2015

Shopping is big business in Dubai. The Dubai Mall, the world’s largest shopping mall based on total area, welcomed 80 million visitors in 2014. Emaar, its owner and developer, has announced an ambitious target of 100 million visitors a year to the mall once its one million sq ft first phase expansion is complete.

According to Mohamad Alabbar, Chairman of Emaar Malls, no other global tourist destination or even airport, which traditionally have the highest footfall, has achieved the significant visitor arrivals The Dubai Mall recorded in 2014. “With wholesale and retail accounting for nearly 30% of Dubai’s real GDP, The Dubai Mall continues to make a sterling contribution to our city’s diversified economic growth,” he said. The contribution of The Dubai Mall to the city’s retail sector is significant, and is estimated to account for about 5% of Dubai’s GDP.

Tenant sales recorded across the mall’s 1,200+ retail stores and 200 F&B outlets, cumulatively grew by 14% in 2014, with growth seen across categories including fashion, luxury jewellery, footwear, sports and recreation, health and beauty, entertainment and food.

It’s not just The Dubai Mall that has been enjoying this up tick. According to statistics issues by Visa, the total Visa card spend in the first two weeks of the Dubai Shopping Festival 2015 increased 12% year on year to reach USD 54 million.

Emirates NBD has reportedly forecast that if sales grow in line with anticipated population growth of 4.4% to 5.5% per year, Dubai’s retail turnover could reach AED 205 billion (USD 55.8 billion) by 2020.

INCREASING COSTS

However, as footfall and sales grow, so too do retail rents. Good news for mall owners, but some in the industry fear that the continued upward pressure on rents being placed on retailers could implode, pushing smaller shops out of business.

JLL’s Dubai Real Estate Market Overview for Q1, 2015, showed that retail rents had increased 16% across the board in the last 12 months. According to JLL, average primary rents stood at AED 4,890 per sqm per year, while secondary rents stood at AED 2,180 per sqm per year.

These are record figures, although it has been reported that rents at the ‘super-prime’ malls, including Mall of the Emirates and The Dubai Mall, have topped AED 6,000 per sqm.

“From the old souks, Dubai has grown to include mega malls that make it the region’s primary retail destination. Over the years, as new stock has been introduced, Dubai has developed into a two tier market with primary quality retail centres enjoying high rates. The secondary malls being less popular have caused an increasing differential between the primary and secondary centres and they are forced to offer lower rates, leasing incentives such as rent-free periods, and contributions to fit-out to attract retailers,” said Andrew Williamson, Head of Retail, JLL MENA.

“The different types of retail space in Dubai has also impacted the rents offered; generally speaking, the rates offered in malls will differ from the rents in strip retail (The Beach) or high street locations (Sheikh Zayed). As Dubai’s physical retail structure evolves to include multiple types of retail spaces so do the rental prices for those locations.”

Dubai’s malls enjoy an occupancy rate of 92%, according to the JLL report, but as more space comes online, price differentials could come into play.

“Retail rental prices differ by the type of retailer, unit location, unit size, type of mall and its location. Anchor tenants usually enjoy the lowest rates and are offered lease incentives due to their positioning as a traffic generator,” said Williamson.

“The Dubai Mall usually sets the highest rates since it attracts high footfall, which include high spending tourists. On average the bigger the unit is, the lower the price. Rents for prime locations have more than doubled over the past five years,” he added.

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