Landlords, retailers adapt to new market conditions

The Dubai Mall and Mall of the Emirates remain the top choice for existing and new brands to operate in.

Landlords are offering flexible lease terms, including longer rent-free periods, in an attempt to retain their key occupiers as the UAE retail market faced continuing headwinds with a strong dirham continuing to dent sales.
A new research by real estate consultancy Knight Frank also reveals that while well-established malls with higher footfall continue to maintain healthy occupancy rates, the delivery of additional retail supply is expected to put pressure on overall occupancy rates.
The UAE shopping malls are also expected to experience further competitive pressures from online rivals, as more consumers embrace e-shopping, analysts at the real estate consultancy said.
However, the long-term view remains optimistic as Dubai's retail market is strongly supported by the hospitality sector. "The delivery of Dubai's new theme park complexes along with the Opera District and other demand generators is expected to drive demand for the hospitality market, which will undoubtedly have a knock-on effect on the retail market."
Matthew Dadd, partner at Knight Frank, said retailers in the UAE are now seeing modest single-digit growth in sales due to general macroeconomic conditions. However, there are signs of saturation as an additional 900,000 sq m of space will be delivered over the next couple of years through new shopping centres or expansions to already existing ones. This comes as developers use retail as an anchor for their mixed-use developments.
The report noted that super regional malls such as The Dubai Mall and Mall of the Emirates remain the top choice for existing and new brands to operate in. Meanwhile community and neighbourhood centres have gathered pace in recent years, as they add value to the  residents and ensure continuous revenue streams for retailers  and mall operators.
 A report by real estate consultancy Core Savills predicts that Dubai can expect to see its existing retail stock go up by 25 per cent in the next three years with nearly 800,000 square metres of new retail supply. Therefore, the market should anticipate an overhang of retail supply owing to the many projects nearing completion, including Nakheel Mall, Pointe on the Palm Jumeirah, and The Dubai Mall expansion, not to mention the high number of malls looking to be operational in time for Expo 2020.
Dubai, despite its modest population, is already ranked second highest in the world - behind New York - in terms of mall density at 1,214 sqm(GLA)/1,000 people and is due to show signs of peak market penetration, the report notes.
Knight Frank report noted that weaker market conditions coupled with a strong supply  pipeline are driving retailers and mall operators to offer promotions and price reductions to entice customers and maintain strong footfall. Strategies such as the three-day 'Super Sale' (May 18-20), is part of the Dubai Festivals and Retail Establishment's robust scheme to further boost Dubai's retail sector. Boosting sales, particularly ahead of Ramadan and the quieter summer months, is expected to further enhance and build on the emirate's strong position as a central shopping hub, said the report.
The general macroeconomic conditions that resulted in the slowdown in retail sales growth in 2016 are still largely in place and will continue to contribute to a challenging environment for retailers. Once used to double-digit growth
(10 per cent-15 per cent), UAE retailers are now seeing modest single-digit growth in sales, said the report.
Another trend is that traditional retailers are facing competition from e-commerce leaders such as Amazon. E-commerce sales are expected to account for $1.5 billion of the Gulf's high-end luxury segment within the next four years.
Retailers are also coming up with new strategies by   more often offering promotions and price reductions to entice customers and maintain strong footfall to further enhance and build on the emirate's strong position as a central shopping hub.
The study found that supported by Dubai's position as a regional hub for trade flows and re-exporter of devices in the region the electronics market is expected to grow 4.7 per cent to reach $3 billion by 2020.
The study also noted that traditional retail sector is evolving, offering urban-lifestyle destinations, such as Box Park, Citywalk and the Dubai Design District (D3).
"It is our view that brick & mortar stores will continue to be essential given shopping centres in Dubai provide family entertainment in addition to shopping, however retailers may look to realign their real estate strategies to reduce operating costs and to invest further into online channels," said the study.
- issacjohn@khaleejtimes.com