The retail sector is undergoing a period of transition but opportunities do exist in developing community-led retail concepts in selective locations of Dubai, according to Jones Lang LaSalle.
"Despite the market becoming more competitive, opportunities remain for the development of further well positioned community-led retail concepts in selective locations within Dubai such as Palm Jumeriah," the global consultancy said in a Mena house view report.
According to the report, the total stock of quality retail mall space in Dubai has increased from 15 million square feet in 2006 to its current total of 24 million square feet. This has resulted in the market becoming more competitive, as the retail space per capita has increased from 10.5 square feet in 2006 to 13.3 sq ft at present.
This fast-paced, supply-led retail model has been successful during the recent high growth period. However, with the slowdown in the rate of economic growth experienced in 2008 and 2009, the retail sector has been impacted by its previous emphasis on luxury shopping and the reliance on a continued influx of wealthy tourists and new visitors coming to live and work in Dubai. With changing and more competitive market conditions likely to characterise the retail sector over the next few years, there is a growing recognition that retailers and mall owners will need to work increasingly closely together to ensure the retail business continues to thrive and grow in Dubai.
Besides, much of the Dubai retail offer has been targeted at attracting tourist spending. The market is now adjusting to address the resident population. Industry players are increasingly focussing on demand from those living within the city and how to capitalise on its potential in generating retail sales, the report said.
Moreover, the focus of consumers has moved closer to a stronger value proposition. With a decline in purchasing power of resident population over the past 18 months, consumer shopping budgets have reduced significantly.
"This represents a shift away from luxury driven retail. For retailers and mall owners, there is now heightened competition to aggressively capture shoppers' interests and disposable income," JLL said.
Recent changes in the retail sector have seen the market move in favour of retailers. This has resulted in owners becoming more amenable to retailers' requests for more flexible lease terms including, shorter term leases, break lease clauses, percentage of sales only rents and rent free periods. These tenant-favourable conditions are expected to continue to characterise the market during 2010 and 2011.
With financing difficult to achieve for new mall developments and some sectors of the market approaching saturation, several proposed future malls are "likely to be delayed". This will result in much lower levels of expected future supply entering the retail market during the rest of 2010 and 2011, with no new super regional centres expected before the completion of the first stage of the Mall of Arabia, which is expected to be completed in 2013, JLL said.
This reduction in the delivery of new retail shopping centres will give the market breathing space to absorb the high levels of supply experienced in recent years. Mirdiff City Centre will be the last super regional centre to open for the next three years. "While it is too early to assess the impact of this new centre, it is expected to attract both spending and retail tenants from other centres in the northern regions of Dubai," the report said.
Mirdiff City Centre also reflects a number of the other major trends impacting the market including the focus on local residents and the increased emphasis on value proposition.
The future health of the retail market will be mostly driven by the speed with which retail spending increases. Retailers and mall owners have reported a typical decline of at least 20 per cent in retail sales during 2009, it said. However, anecdotal evidence suggests that retail sales are now starting to recover, with increased footfall and turnover being reported by some retailers during the recent Dubai Shopping Festival.
The Dubai Chamber of Commerce reported that total retail spending is expected to increase by around four per cent in 2010 and by more than eight per cent in 2011. For the remainder of 2010 and beyond, Dubai's retail market is likely to shift in line with the mainstream global retail market through an increased emphasis on competitive pricing, creative marketing programmes, convenience shopping and value for money. The shift in the structure of the retail sector is occurring with the emphasis being on a back-to-basics approach with a number of prudent retailers are already looking at new strategies in this regard.
This trend is likely to result in the repositioning of both existing and new retail centres away from the previous focus on luxury brands towards value merchandising. Owners and managers of shopping malls will have to consider implementing active management strategies to re-align these properties to retain value.
Some obsolescent or underperforming shopping centres may be redeveloped or even in some cases converted to other uses – as has been witnessed in some US and European markets. The retail sector has mirrored the growth of the entire Dubai real estate market over the past five years. The construction of numerous large-scale projects has supported a burgeoning resident population, but more specifically, a large and growing tourist population.
The development of transportation links to Dubai, specifically the creation of a transit hub through the growth of Emirates airlines and the expansion of the Dubai International Airport have played a significant part in the rise of its retail sector. Gulf Cooperation Council travellers from Saudi Arabia and Kuwait are the most popular tourists visiting
Over the past 10 years a noticeable shift in development trends within the retail sector has taken place. There has been a clear movement away from the traditional standalone shops and souks within the city centres of Deira and Bur Dubai towards more luxury malls in the outer areas of the city.
During the past five years, locations such as Al Barsha, Old Town and Dubai Festival City have seen growing residential communities emerge to support the major new retail developments.
The new "super regional malls" have generated significant interest and trade due to their size, prominence, retail dominance and entertainment components, the report said.