Existing landlords of shopping malls need to be very proactive over the next three years in securing and retaining their anchor tenants in the medium to long term, according to a report by Investment Boutique on the Abu Dhabi state of the market 2010.

"Negotiations of lease renewals must be pursued a lot earlier than previously practiced; if refurbishments for both tenant areas and common areas can be acted upon with minimal footfall disruption, these should be pursued to keep the retail offering fresh and attractive," Heather Wipperman, CEO, Investment Boutique, said.

Landlords will have to actively promote their shopping malls on their own or in conjunction with major anchors to keep footfall high in their respective malls in the face of new competition.

Further, the report said that an excessive supply is expected as a result of the completion of Yas Mall and Al Reem Mall. The 17.1 per cent undersupply projected in 2011 will not only be filled but an oversupply of 10.3 per cent is expected to materialise. Significant rental downward pressure within the central business district (CBD) and surrounding areas will be fuelled by Al Reem Mall's completion. In general, vacancies will rise leading to a further decline in leasing rates.

Increases in supply will be witnessed, though not at the same pace of 2010. The status quo of rentals and occupancies will remain relatively the same as the previous year. In light of the continued highly competitive zonal developments, further downward pressure could start to filter in towards the later part of the year. This downward pressure will be aggravated by the commencement of leasing activity for the new malls due to open in 2012.

The undersupply gap is expected to reduce significantly over the course of this year, and from a 2009 shortfall of 63.6 per cent, the end year gap should fall to 25.9 per cent. Shortages of SME finance, nominal growth in population numbers and the area specific concentration of new supply will negatively impact occupancies and average rental levels across the city.

In order to assess supply, IB carried out land use audits in leasehold areas such as Hamdan Street, Airport Road, Electra Street and Khalidiyah. Other places that have a fairly high concentration of street retail are the CBD, Corniche and Muroor.

High street retail includes showrooms and large grocery shops which are not included in a structured retail environment. IB counts the current high street retail space to be 693,000 square metre of GLA.

Currently there is a trend of shops and supermarkets mushrooming along side small shopping centres such as Hamdan Centre, Hamed Centre and Liwa Centre.

Catchment area analysis

"Due to the overall economic environment, we believe the upcoming supply will adversely affect the retail market in the short term. Though the Abu Dhabi retail market is currently undersupplied by 63.6 per cent, rents and vacancies will not be affected in a positive manner by the upcoming supply as a number of new malls coming up in 2010 will be located in common catchment areas."

IB believes that this situation will lead to a highly competitive market which, in addition to the adverse economic conditions and conservative market approach by most of the retailers, will lead to a fall in rentals. Further, 2011 and 2012 will also see a rise in supply along with a fall in occupancy levels.

Retailers are going to face very high demand for their brands and business due to the extensive new supply coming online. In this case retailers have to be very cautious in which malls they commit new or existing stores.

Investor's capital will be sought to participate in existing and or new mall developments over the next few years. Currently most retail precincts and structured environments within the city are operating at close to full occupancy. Rental rates have remained relatively stable in line with occupancies. Retailers have however voiced their concerns based on lower recorded revenues in relation to previous years.

Under normal circumstances a five per cent vacancy is always apparent, and this is kept through the forecast period. Due to catchment area dynamics referred to earlier, there will still be a slight downward force on the average rentals in the city. IB anticipates vacancy levels in the capital's malls, similar to what was witnessed in Dubai during the opening period of Dubai Mall and Dubai Marina Mall, are reflected in its forecasts.