Monday, May 22, 2017

Dubai: Dubai’s second-tier shopping malls had better watch out - they will be the ones facing the most intense pressure on occupancy and rentals when the next set of mega developments open within the next four years.

And Abu Dhabi’s retail space should be the next to reach a similar saturation point, according to a new sector update by Alpen Capital.

But elsewhere in the Gulf - and particularly in Saudi Arabia - it could be quite a while before brick-and-mortar capacity reaches an upper limit, the report adds.

“In cities like Jeddah or Dammam, the per capita retail leasable space (as of 2015 estimates) is 0.23 and 0.48 square metres as against Dubai’s 1.26 and Abu Dhabi’s 0.95,” said Mahboob Murshed, Managing Director, Alpen Capital (M.E.) Ltd.

“That still leaves a lot of headroom for new capacity.” (In the US, the per capita retail GLA is estimated at 2.14 square metres.) “But we believe Dubai is reaching a significant saturation point, and secondary malls are suffering quite a bit in terms of vacancies. When new malls open, they soon emerge as must-visit places for shoppers. And the existing top malls continue to see a rise in rental terms.”

Simultaneously, secondary malls become less of a vital cog in retailers’ scheme of things. This then represents the biggest threat to the retail sector as vacancies pile up in Tier-B retail assets.

But what of the threat from online shopping? Will brick-and-mortar in the UAE and the rest of the Gulf states go the US way, with older shopping centres facing low vacancies or outright closures?

At 80 per cent occupancy, 6.2 million square metres of retail space is likely to come up in the Gulf in the five years to 2021, taking total organised gross leasable area (GLA) to 18.6 million square metres.

The rapid rise “amidst the economic slowdown may create an oversupply in the UAE, Qatar and Oman”.

As with mall developments, there are two patterns emerging in the Gulf.

While in the UAE, online shopping penetration has gone past the 50 per cent mark, in other Gulf states that would be 10-15 per cent.

“Wherever the cost of online shopping gets to be much lower than the physical, there will be pressure on physical retail,” said Murshed. “But, again, the impact will be more apparent in the secondary retail space.”

Alpen is fairly bullish on the Gulf’s retail sector prospects for the next three to four years, which it says has to do with the rise in population and especially that of the young.

The under-25 years will be accounting for 40 per cent of the region’s population. And they have the “propensity to spend more” on fashion and F&B.

Plus, the spending on infrastructure - creation of vast railway networks connecting key cities in Saudi Arabia - also bodes well, as will future gains in tourist arrivals.

Such future outcomes should help turnaround the effect of rather two extremely tough years for the sector, and which has continued into the first five months of 2017.

“Size of the GCC retail sector is forecast to grow at a CAGR (compounded annual growth rate) of 4.6 per cent from $250.5 billion [Dh920 billion] in 2016 to $313.2 billion in 2021,” Alpen reports. “After witnessing a drop in 2016, retail sales are likely to grow at a slow pace in 2017.

“Nevertheless, the sector is expected to recover in 2018 and grow steadily through 2021.”

Where the Gulf’s retail sector could see growth

* In the years leading up to 2020-21, retail sales in the GCC nations are projected to grow by 3.3-5 per cent, with Saudi Arabia projected to grow the fastest, according to Alpen Capital’s sector update

* Non-food retail sales could grow at a CAGR of 5.3 per cent, driven by demand from the millennials. Food retail sales are likely to grow at an annualized 3.5 per cent.

• Sales at super/hypermarkets are forecast to touch 4.3 per cent between 2016-20.

* Airport-based duty free sales in the Middle East are projected to grow at an annualized 7.9 per cent.

* Sales of luxury goods could see gains of 3.2 per cent a year.

By Manoj Nair Associate Editor

Gulf News 2017. All rights reserved.