Retail Market Summary, Dubai

Additional retail space expected to complete during 2017 totals approximately 207,000 sqm.

Schemes or extensions due for completion between 2017 and 2020 include The Dubai Mall extension, Nakheel Mall, The Pointe on the Palm Jumeirah, Deira Mall and Meydan One, greatly increasing the retail GLA within the Emirate.

There is also a notable increase in the number of community and neighbourhood malls being constructed.

Current Market Situation / Trends

The general macroeconomic conditions which resulted in the slowdown in retail sales growth in 2016, are still largely in place. Therefore this will continue to contribute to a challenging environment for retailers. Once used to double-digit growth (c.10%-15%), UAE retailers are now seeing modest single- digit growth in sales.

Dubai’s retail sector is expected to see an additional 900,000 sqm. of space getting delivered over the next couple of years, either through new shopping centres or expansions to already existing ones. This comes as developers use retail as an anchor for their mixed-use developments.

Super regional malls such as The Dubai Mall and Mall of the Emirates remain the top choice for existing and new brands to operate in. Meanwhile community and neighbourhood centres have gathered pace in recent years, as they add value to the residents and ensure continuous revenue streams for retailers and mall operators.

Despite some evidence suggesting that the retail market is currently under pressure in Dubai, the headline rental levels have largely remained unchanged on both a Q o Q and Y o Y basis. Generally, renewals on new leases for the year to date did not achieve any increase in rental levels (note; this does not take into account other inducements retailers may have received to deliver their offer) although in many cases the developers were asking the tenants for such, suggesting that the market is turning in favour of tenants.

In addition, the number of units able to achieve the same level of rentals has also declined over the last 6 months of 2017 further disguising the effective softening in rentals achieved.

Retail Market Outlook

The general sentiment among retailers and mall operators is expected to remain cautionary in 2017. Consumer confidence is low amid job insecurities, and the higher cost of living has impacted residents’ purchasing powers. In addition, the strengthening of the USD is showing little respite, particularly with the potential for interest rate hikes in 2017. This will ultimately push the UAE Dirham even further, making the country an expensive retail destination, especially for luxury shoppers from countries such as China, Russia and India.

UAE shopping destinations are also expected to experience further competitive pressures from online rivals, as more consumers embrace e-shopping. In Dubai, the strong supply pipeline is likely to weaken rents and potentially result in a market correction.

However, the intermediate to long-term view remains optimistic as Dubai’s retail market is strongly supported by the hospitality sector. The delivery of Dubai’s theme park complex amongst other demand generators is expected to drive the hospitality market, which will undoubtedly have knock-on effects on the retail market. This is maintained by on-going investment in the supporting infrastructure namely Dubai International Airport (currently one of the busiest in the world in terms of international passenger traffic) and Al Maktoum International Airport, in addition to the expansion of Emirates Airlines.

Conclusion

There is an evident need to diversify the retail offer in Dubai from the more traditional regional and super regional mall offer that currently predominates.

There is no doubt that high volume retail has a place in Dubai but the current and forthcoming supply and the questionable conversion rates from footfall to actual purchase is putting increasing pressure on these retail segments to deliver sustainable turnover ratios.

There is an evident gap in the retail market for the delivery of small to medium sized community malls or the retail offer that might be expected to feature in these types of mall. Community retail offer can be delivered successfully in a non-community mall environment. This is achieved by designating a specific area of a larger mall to specific types of both F&B and general retail or designing the walkways in a mall or retail environment to feel like a high street offer.

There are few examples of this being successfully delivered in Dubai as aspirational retail delivery still seemingly remains the paramount concern for developers. Where this is delivered successfully the benefits are clear.