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28 March 2024

Dubai retail space to hit 2.7m sqm

(AFP)

Published
By Shweta Jain

About 748,000 square metres of new supply will enter Dubai's retail space over the next three years, taking the gross leasable area (GLA) under retail to 2.7 million square metres, up from two million at the end of 2008, financial services firm JP Morgan has estimated.

"Underpinned by easy liquidity, indigenous consumer demand and rising tourist flow, Dubai's retail space has been on expansion over the past couple of years," a report by the company said.

With Dubai's retail space largely represented by mega malls, The Dubai Mall, the Gulf's largest destination mall by size, boasts more than 1,200 retail outlets with total GLA of 344,000 sqm, JP Morgan said in the report.

It added that while the latest data remains unavailable, in terms of footfall (number of people), Mall of the Emirates stood well ahead of its peers last year with average monthly footfall of two million, followed by Deira City Centre at 1.5 million and Ibn Battuta at below one million.

Dubai's top five shopping malls currently make up for more than 52 per cent of the total retail space in Dubai, which is likely to rise to 79 per cent by 2011, according to JP Morgan's estimates.

Up until mid-2008, retail occupancy rates in top five malls were as high as 98 per cent with average occupancy levels for the retail segment hovering at 90 per cent, the report said.

"However, global downturn and resultant corporate downsizing, tight liquidity and reduced tourist flows have had their effect on Dubai's retail segment as well, where we estimate average occupancy levels to shrink in 2009 with negative population growth and low contribution from the tourism segment," JP Morgan said in the report.

Further indicating that the Dubai retail sector could witness lower rates on the back of a low demand, the report states that the demand for retail and hospitality segment is determined by a number of factors. These include: economic growth, which sets per capita incomes and consumption levels; population growth, which is responsible for recurring as well as incremental consumer spending and demand for retail services; and tourism, which, in Dubai's case, makes up 40 per cent of the demand for retail services and directly contributes 2.5 per cent to the emirate's GDP, the report said.


HOTEL REVENUES TO REMAIN IN CHECK

With occupancy rate averaging at 79 per cent during 2002-2008 period and steady increase in room rates, Dubai's hotel revenues have grown at a CAGR (compounded annual growth rate) of 25 per cent over the past six years, according to the JP Morgan report.

Despite a slight increase in visitor flows during the first quarter of 2009, given the sharp reduction in occupancy levels and room rates, JP Morgan estimates Dubai hotels revenue to have slipped by 33 per cent on average from peak monthly revenue of Dh1.6 billion in November last year.

"The summer is likely to add to the problems, as slowing tourist traffic in summer months and Ramadan will likely keep rates and occupancy levels both under pressure for a major part of this year," the report said.

It said: "Dubai hotel revenues and traffic have remained weak historically during summer months and Ramadan [third quarter] and seen a sharp recovery post-September. The difference this time is regional economic growth projections and confidence remain weak, making traffic and revenues post-September improbable in our view."

Furthermore, driven by tourism as well as business, Dubai's hospitality sector has witnessed significant growth over the past couple of years, and hotel revenues are to remain in check in the near term, as per the firm's estimates.

In order to keep pace with growing demand, the Dubai hotel sector has witnessed continued expansion in capacity, where the total number of hotel rooms is set to reach 56,000 (as per the Jones Lang LaSalle estimates) by end-2009 up from 20,315 rooms at end-2000, the report said.

It added that while the expansion was originally in line with DTMC's [Department of Commerce and Tourism Marketing] targeted visitor traffic of 16 million by end-2010, the financial meltdown and likely slowdown in traffic flows as tourists watch their tight budgets and businesses operate under strict cost controls, calls for a "downward adjustment".

Europe alone accounted for 35 per cent of the visitor flow to Dubai in 2008, where ongoing slump, poor economic growth and mounting jobless rate are likely to affect tourist flows to Dubai, according to JP Morgan.

"Although a number of new hotel projects have been delayed and cancelled, according to JLLS the total number of hotel rooms is still likely to reach 76,280 by end-2011," the report stated.

Meanwhile, Dubai hotels saw the biggest falls in revenue in the region in the first half of 2009 with its revenue per available room (RevPAR) dropping 35 per cent, according to a recent report by a report by US hospitality research firm STR Global and Deloitte & Touche Middle East. It stated that hotels in 22 cities in the Middle East witnessed an average 10.9 per cent decrease in occupancies and a 17.2 per cent drop in RevPAR.

"Due to macro economic reasons [regional or international] and the addition of new hotel rooms that will enter the market and fight for market share, it is possible that hotel room rates and therefore RevPARs may decline further," Costas Verginis, Consulting Director at Deloitte in Dubai, recently told Emirates Business.

Similarly, as per estimates, Dubai hotels are likely to witness a revenue fall of about 35 per cent in the whole of 2009. "Markets such as Dubai are going to see a fairly significant revenue per available room fall in 2009. Just in the first quarter of this year, Dubai hotels' RevPar was down 30 per cent, primarily driven by the decline in average room rates rather than occupancy, which is down a little bit but not significantly. For the whole year, overall revenue could be down a little bit more, maybe about 35 per cent," Arthur de Haast, Global Chief Executive Officer of Jones Lang LaSalle, had recently told Emirates Business.

 

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