Dubai: The mall of the masses

Dubai has a higher mall density compared to London and Paris.

Dubai, which is among the world's most preferred shopping destinations, has the second highest mall density in the world after New York, while nearly 380 per cent higher than that of London and 240 per cent of Paris.
With a 1,214 gross leasable area (sqm/1,000 people), Dubai is the most penetrated retail markets in the region and offers the most competitive prime rents across global retail hubs and positions itself favourably among luxury and fashion retailers, according to a Dubai retail report by Core Savills.
Dubai has a higher mall density compared to London and Paris, partially because these European markets have a stronger high street market in addition to a much higher population base than Dubai. Such high mall density is largely justified by Dubai's very high visitor to tourist ratio of nearly 5.6 visitors per resident, the real estate company said in its report.
Dubai is also positioned higher than other Asian markets which have a significant mall stock such as Hong Kong (by 113 per cent) and Singapore (by 56 per cent). Such high mall density is largely justified by Dubai's very high visitor to tourist ratio of nearly 5.6 visitors per resident - the highest amongst all global retail destinations.
The city holds nearly 49 per cent of the total retail stock in the UAE, followed by Abu Dhabi at 36 per cent. With a market size of about 3.2 million sqm (GLA), over 87 per cent of the total stock is managed by the top five developers including Emaar, Nakheel, Majid Al Futtaim, AlFuttaim and Meraas.
According to the report, luxury retail rents in Dubai are nearly 90 per cent lower than New York and almost 75-76 per cent lower than Hong Kong, London and Paris.
"Dubai's retail sector demand is led by privately owned retail groups, which operate almost 90 per cent of global brands in Dubai while the top five state-backed developers form nearly 87 per cent of total retail supply," said David Godchaux, CEO of Core Savills.
"As a global shoppers' destination of choice, Dubai's retail sector is positioned to emerge as the world's number one in mall density given the city's target of attracting 20 million overnight tourists by 2020. With more theme parks and other iconic tourist spots adding to Dubai's tourist attraction, the city's retail landscape will witness remarkable growth in the years to come," said Kamal Vachani, group director of Al Maya Group, a Dubai-based retail chain.
According to consultants JLL, Dubai's retail sector added about 260,000 square metres of new space in 2016, the highest volume since 2010. In a report, JLL said fourth quarter saw the completion of about 20,000 square metres of retail space in the Dubai Festival City expansion while other notable completions throughout the year were phase 2 of The Avenue in City Walk and the Ibn Battuta Mall phase 2.
"Despite a number of retailers reporting a decline of sales during 2016, average retail rents remained unchanged in the primary malls of Dubai and Abu Dhabi. In Dubai, retail rents are expected to remain stable in prime malls, but could soften in secondary locations as new supply enters the market," said Craig Plumb, head of research at JLL Mena.
According to data from project tracking service Meed, despite challenging market conditions and potential oversupply, 2017 is set to be a bumper year for retail projects on all fronts in the emirate of Dubai. Over $4 billion of mall projects will be awarded in 2017, compared to $502 million last year and $812 million the year before that.
Core Savills report said in a retail eco-system such as Dubai, this "close control" makes the market relatively less elastic compared to other global markets which are typically driven by a much larger pool of offer and demand.
Last year, retail stock rose eight per cent, pushing the market size to nearly 3.2 million sqm (GLA). With many projects nearing completion like The Dubai Mall expansion, Nakheel Mall and Pointe on the Palm Jumeirah, in addition to more malls aiming to be operational in the run up to Expo 2020, an overhang of overall retail supply is expected, said the report.
Nearly 800,000sqm of major retail supply is forecast for the next three years, adding 25 per cent to existing stock.
"Despite the softening regional economic conditions, demand from retailers has not seen a significant dip with stable preleasing activity witnessed in The Dubai Mall expansion and other strategically located under-construction malls nearing completion. Furthermore, the super-regional malls which are located on the Sheikh Zayed Road are all currently witnessing occupancies northwards of 98 per cent.
"This has led many retailers to be on the waiting list as developers aim to maintain a tenant mix that is unique and appropriate for the pitch in which the brand is located," added Godchaux.
With the looming overhang of deliveries to escalate existing high levels of mall density in the next three years, the warning signs of market saturation have started to show.
"The strengthening dollar has caused a contraction in spending from Russian, British and European tourists while the lull in oil prices and ensuing austerity measures have affected the buying sentiment, particularly for discretionary spending of the GCC consumers," said Godchaux.
The report noted that with most major international brands already having a presence in Dubai and many in fact having multiple stores across super-regional malls, room for potential demand may start to contract as market penetration reaches its peak.
"Despite a relatively closed market, we foresee the retail sector to progressively segment itself with higher and lower performing assets created by a process of natural selection by retailers."
Godchaux said the three super-regional malls on Sheikh Zayed Road - The Dubai Mall, Mall of Emirates and Ibn Battuta Mall - will remain the top choice for existing and new brands to operate as the market starts to saturate.
"Dubai has long shed its emerging retail market tag and has firmly positioned itself as a global shopping destination on the back of its robust retail and tourism sector, which positively affects other domains of its diverse economy. With rising levels of new stock coming to market over the next three to four years and first signs of market saturation starting to show, it is to be seen if demand can continue to match up - albeit the strength doesn't become a threat instead," said Godchaux.
- issacjohn@khaleejtimes.com