Dubai's Q1 retail rent values dive 34%

The average estimated rental value (ERV) in Dubai's retail sector declined by approximately 34 per cent to Dh240 per square foot in the first quarter of 2010 as compared to the first quarter of 2009, a recent report revealed.

The latest Jones Lang LaSalle (JLL) Dubai Real Estate Market Overview for the first quarter of 2010 revealed that average ERVs declined by eight per cent from the fourth quarter of 2009 to the first quarter of 2010.

Regional and super regional mall rents are typically 30 per cent to 40 per cent higher than average rents. In the face of falling sales revenues, some tenants are beginning to relocate to older malls to benefit from lower lease rates while others are in the process of negotiating better lease terms such as shorter lease terms, break clauses and rent-free periods.

Increased supply

"Retail rents continue to fall in Dubai whereas they have stabilised in other cities within the region," said the JLL report. It added that no new major mall supply is expected to be released in Dubai until 2013 with the opening of the first phase of Mall of Arabia.

Total retail supply in Dubai is expected to reach 27 million square feet at the end of 2010 with the total mall stock at the end of 2013 expected to reach approximately 31 million square feet area of gross leasable area (GLA).

As of the first quarter of 2010, current total retail supply across Dubai is approximately 26 million sq ft of GLA, marking an increase of two million sq ft space since the fourth quarter of 2009, mostly because of the recent opening of Mirdif City Centre.

Expected rise in footfall

Jones Lang LaSalle said expansion plans by retailers are either being revised downwards or cancelled altogether in the emirate. "Dubai has seen one of the fastest growths in terms of retail supply, with its GLA per capita growing from 10.5 sq feet in 2006 to 14 sq feet in 2010."

"Super regional and regional malls currently account for 75 per cent of total mall based retail space."

Although, retail sales revenue is estimated to have declined by an average of 30 per cent over 2009, they are expected to increase by around three per cent to five per cent in 2010, primarily driven by retail goods sold in department stores and value chains rather than luxury brands. "We expect to see an increase in shorter leases, break clauses and rent free periods as the market shifts in favour of the tenants," the report said.

Despite the slow growth projected in consumer spending, annual footfall in major super regional malls (such as The Dubai Mall) is expected to rise in 2010, owing to tourist attractions and entertainment anchors within malls.

Retailers are continuing to reduce their costs and inventories in the light of lowered consumer spending, which should help mitigate further decline in revenues.

Although super regional malls account for 75 per cent of the total retail space in terms of GLA, they only account for 26 per cent of the total number of shopping centres in Dubai. The proportion of super regional malls is likely to decrease in the future as JLL foresees community-led retail concepts to form the majority of the development pipeline after 2012.

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