Wednesday, Mar 07, 2012

(From THE WALL STREET JOURNAL)

By Tahani Karrar-Lewsley

DUBAI (Zawya Dow Jones)--As a severe oversupply of residential and office real estate pushes prices of those properties lower, developers in the emirate are seeing opportunity in retail space-a relatively underdeveloped sector that has performed well despite the economic crisis.

While commercial office rents fell by as much as 20% last year, average rents in Dubai's retail sector were unchanged, due in part to limited retail space. Increased shopping by tourists boosted profits for retailers.

Last year, average store rent per square meter was 1,885 United Arab Emirates dirhams ($513.20), and major venues such as Dubai Mall, Deira City Centre and Mall of the Emirates were almost 100% leased, according to property-services company Jones Lang LaSalle, which expects average retail rents to rise in 2012.

In January, Dubai-based developer Nakheel PJSC announced its intention to raise 300 million dirhams to build a retail and tourism project called The Pointe, located at the tip of the man-made Palm Jumeirah island, across the bay from The Atlantis hotel. The project is scheduled for completion by 2013 and will include 136,000 square meters of shops, fancy restaurants and a mix of cafes and patisseries.

At the time of the announcement, Nakheel Chairman Ali Rashid Lootah acknowledged the current demand for high-quality retail space in the Palm Jumeirah development. "These are opportunities within our projects and we have to capitalize on them," he said.

Emaar Properties is another Dubai-based developer looking to capitalize on retail development. Last month, Emaar said it planned to expand its flagship asset, Dubai Mall, by more than 93,000 square meters from the existing 1.1 million square meters to include more shops and hotel rooms.

Dubai's malls now have 2.58 million square meters of retail space. This compares with 4.096 million square meters of mall space in Paris and 1.042 million square meters in London. But little supply is under construction in the emirate: Only 5,700 square meters are scheduled for completion in 2012. In contrast, 1.1 million square meters of office space and 23,000 villas and apartments are expected to become available this year.

At present, almost 60% of Dubai's total retail space is in large centers such as Dubai Mall and Mall of the Emirates. Jones Lang LaSalle expects this percentage to decline in the coming years as the retail market sees more emphasis on smaller centers aimed at residents, rather than tourists.

"A lot of the mega retail projects that were planned during the boom years were put on hold or canceled after the financial crisis of 2009," said Craig Plumb, head of research for the Middle East and Northern Africa at Jones Lang LaSalle. There are now opportunities for smaller malls and retail projects in and around completed residential and commercial developments, targeting tourists and residents alike.

"The retail market is not as oversupplied as the residential and office markets," he said.

Retail projects planned ahead of the property slump that hit Dubai in 2009 included Mall of Arabia, which would have been the largest in the world with a gross leasable area of 372,000 square meters. Work on this project has been put on hold until 2015, according to officials at Ilyas & Mustafa Galadari Group, the master developer of the project.

Matthew Green, head of research and consulting in the U.A.E. for property-services company CB Richard Ellis, said retail space offers longer-term, more stable income generation than the residential market. "You would be looking at five-year leases or longer for your tenants. It's basically long-term secure income," he said. But he warned that the retail sector could experience the cycle of boom and bust seen in the residential and office sectors.

"If you have too many developers doing the same thing, you could have oversupply further down the line and already we are seeing there may be too much competition, with newer retail developments taking away business from older malls," he said.

"Developers will need to constantly update their retail offering," Mr. Green said. Rents in poorer-quality centers are already falling, while rents in nicer malls rose in 2011 as retailers sought space in prime locations to attract customers.

-By Tahani Karrar-Lewsley, Dow Jones Newswires; +9714 446-1692; Tahani.Karrar@dowjones.com

Copyright (c) 2012 Dow Jones & Co.

(END) Dow Jones Newswires

07-03-12 0521GMT