For Dubai retailers, high rentals are a permanent state

Enduring their toughest year since 2009, Dubai’s retailers are unlikely to get any respite on their mall rentals any time soon. This is because of the limited new supply coming into the market in 2017.

And those retailers, even big names occupying the choicest spots at destination malls, who are not able to match cost with revenues prefer to make an exit.

And of the new space that will be added, those such as the expansion at The Dubai Mall — totalling 1 million square feet — come at a sizeable premium to the prevailing rates, market sources say.

A sizeable supply will only be available by 2018-19, part of the 800,000 square metres of leasable area the retail sector will absorb before the end of the decade, based on estimates from the consultancy CBRE. So much so, the retail sector seems to be the sole property asset where substantial new supply has had little — or no effect — on what existing malls in Dubai can command.

Even otherwise, “Upcoming deliveries of new malls will not be comparable to the impact the openings of The Dubai Mall and Mall of the Emirates had during the second-half of the last decade,” said Matthew Green, Head of Research and Consultancy at CBRE M.E. “Those openings represented a paradigm shift for the retail sector in the UAE from what it was until then. That sort of shift is not going to happen again.

“But even this year with limited new capacity additions, average rents continued to rise despite the challenges of a weak economy and fewer tourists. Next year will not be much different on the rental side.”

Rentals at the top-end of the retail spectrum has breached the Dh1,500 a square foot mark and is even inching up on Dh1,750 and beyond. But these are the exceptions. Even at locations with rentals in the Dh500-Dh750 range, retailers have had little joy in an extremely difficult trading environment with domestic shoppers less inclined to spend on pampering themselves. Estimates suggest that the luxury end of the market is down 40 per cent and that is on top of a quite weak set of results in 2015.

And for long stretches of the year, tourist-generated dollars were way off their peaks. (Retailer sources are hopeful that a decent set of sales could still be had in the coming weeks from selling to visitors, given the improvement in occupancy levels across hotels in the city since early November.)

“Within existing malls, there are slightly more outlet vacancies happening, mostly because of restructuring efforts on both sides,” said Green. “It could be that some tenants make an exit because that location is not offering them the desired numbers. And, increasingly, mall managements might ask certain tenants to consider leaving because that particular brand’s face no longer fits in with their priorities.

“Burjuman has been redoing their tenant mix and Dubai Festival City’s ongoing expansion delivers a lot more of the F&B experience. In fact, increased space allotment for F&B will be a feature of new mall developments in the region over the next 10 years. There’s more evidence of higher consumer spending happening at malls on F&B transactions — this has become part of the social fabric.”

In recent weeks, more retail and F&B options have been added to the city’s stock, including the cluster within Dubai Parks & Resorts and The Outlet Village, both of which are located in Jebel Ali. “Quality of the works at The Outlet Village has been fantastic and well in line with expectations from other Meraas-built retail destinations such as the City Walk,” said Green. “It seems to be attracting a good amount of footfall during weekends.

“City Walk itself should see a lot more activity from mid next year when the residences are delivered. It will add to the vibrancy

source : gulfnews