12.39 AM Friday, 29 March 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 04:57 06:11 12:27 15:53 18:37 19:51
29 March 2024

Retail expansion puts pressure on lease rates

Dubai needs to attract a lot more tourists to match its retail infrastructure. (IMAD ALAEDDIN)

Published
By VM Sathish

The rapid pace of retail expansion and the opening of several giant shopping malls during the economic downturn have created an oversupply of shopping space in the UAE, according to a senior executive.

The available space is not warranted by the size of population or the number of tourists visiting the country, Tom Miles, Director of Shopping Centres at Al Futtaim Group Real Estate (Afgre), told Emirates Business.

"The number of new retail outlets coming online requires much greater population growth, and Dubai needs to attract a lot more tourists who can spend money on shopping," he said.

"With the opening of new shopping malls, especially the Dubai Mall, there is more shopping space than demand, putting pressure on the lease rates of major malls.

"There is a need to stabilise the market by maintaining a supply-demand equilibrium. Opening more malls and shops in a contracting economy is not good."

Miles, who has worked for major malls in California, declined to give figures to illustrate the pressure the oversupply was putting on lease rates.

Afgre runs Dubai Festival City, which covers 1,300 acres and stretches 3km along Dubai Creek.

"As much as 80 per cent of Festival City is already leased and the remaining 20 per cent is under negotiation for leasing," he added. "We expect more retailers from the US and Europe to enter the UAE retail sector in the near future. Many retailers there are trying to diversify income sources by expanding into other countries."

Miles said US retailers were operating in a saturated market and there was no need for new shopping malls in their country.

"We have toured the mature markets of the US and Europe to talk to retailers and shop owners who are keen to enter the UAE market. Many retailers, who used to take a conservative stand on retail expansion outside their domestic markets, are now keen on achieving growth by entering new markets.

"It is a lot easier to enter the UAE because the country already has developed malls."

Festival Centre has more than 600 outlets, including 25 international flagship stores and new-to-market brands, over 100 restaurants, cafés and bistros, a 12-screen cinema complex and parking for 13,000 cars.



Retail rents continue to fall

Prime retail rents have fallen in almost every part of the world as the global recession has hit consumer sentiment and retail sales, according to a new report.

Rents fell by 10 per cent or more quarter-on-quarter in several markets, including Dubai, Barcelona, Athens and Dublin, says the Global Retail MarketView study by real estate services firm CB Richard Ellis.

"Demand for retail space has declined in most markets across the world as consumers cut back on spending and unemployment continues to rise in many countries," it adds. "Emerging and less established markets have been most significantly affected."

Retailer demand is down in most Europe, Middle East and Africa (Emea) markets, but there are some bright spots as many discount and food retailers have announced major expansion plans.

In some markets, retailers are also known to be negotiating with landlords to secure rent discounts or more favourable lease terms in exchange for agreeing to extend their leases.

Buenos Aires saw the largest annual decline in retail rents year-on- year with a drop of 37 per cent, followed by Warsaw with a drop of 33 per cent and Washington DC with a 26 per cent decline. While some markets have continued to experience year-on-year increases in retail rents, in many cases the current pressure is downward.

The report says prime retail rent represents a typical open market headline rent that an international retail chain can expect to pay for a ground-floor retail unit – either high-street or shopping centre, depending on the market – of the highest quality space in the best location in a given market.

Despite a 10 per cent year-on-year rental decline, New York remains the world's most expensive retail destination, with rental values of $1,800 (Dh6,624) per sq ft per annum. New York's retail rents stand at nearly double those of Hong Kong, which ranks in second place globally.

In an interesting switch, Moscow has superseded Tokyo in the ranking, moving up to third place from fourth, followed by Paris and Tokyo, making up the top five most expensive retail locations.

 

Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here.