Are Dubai's long-term plans sustainable or are they ultimately dependent upon tourism?
Dubai's vibrant retail sector, a crucial part of its economic diversification strategy, now accounts for about half of the emirate's total trade volume.
Retail space is forecast to grow 209 per cent, to 4.25 million square metres, by 2010. By then retail is expected to make up a quarter of the UAE's GDP.
More than 218,000 square metres of gross leasable area (GLA) came onto the market in 2006, with a 26 per cent rise in GLA for 2007 year on year.
The geometric increase in GLA is attributable both to the number and size of new malls coming on-stream.
Since the 1980s about 20 malls have been built. Al Ghurair, which opened in 1981, established the precedent for gigantism. It has long since been overtaken by Ibn Battuta Mall and the 223,000-square metre Mall of the Emirates. There are, however, two developments that is catapulting Dubai into the premier league of retail destinations. They are Dubai Festival City, the Middle East's largest mixed-used development, and Dubai Mall, which will be the world's biggest shopping centre.
Dubai Festival City which includes hotels, residences and schools was undertaken in 2003 with an expected build time of 12 years. It covers a 3.8-kilometre waterside plot on the eastern bank of Dubai Creek.
As of 2006, investment in the project exceeded $3 billion.
A 204,000-square metre urban retail resort forms the centre of Festival City and, when complete, will host 550 retail outlets, including 25 flagship and anchor shops. Its developer, the Al Futtaim Group, has plans to invite a number of new-to-market speciality boutiques and international brands to the successful site, as well as 90 international restaurants, bistros and cafs.
Currently, it is the home of the largest branch of Marks & Spencer outside of its native UK.
Emaar Properties' Dubai Mall, due for completion this year, will cover 1.11 square kilometres, with 840,000 square metres of retail space holding more than 1,000 stores. Plans include a fashion ramp, one of the world's largest aquariums, the world's largest gold souk and an indoor Olympic-sized ice skating rink.
However, it seems that Dubai Mall will hold the title of the largest mall in the world only briefly.
The Mall of Arabia, to be located within the City of Arabia section of the $64 billion Dubailand theme park site, will hold 370,000 square metres of retail space when its first phase is finally completed in 2009.
When finished, its GLA will have risen to a world-topping 929,000 square metres and feature the world's largest Starbucks caf.
Incredibly, the Mall of Arabia forms just part of the shopping network within Dubailand, which will total a staggering 3.72 square kilometres of GLA, 17 times more than the Mall of the Emirates.
Such rapid expansion has prompted speculation about the possible ROIs - Retail International has estimated that retail spending in Dubai could exceed $7.6 billion in 2009 and account for up to half of the emirate's GDP and fears that developers may be overreaching.
Colliers International has estimated that Dubai will need to more than double its annual per capita retail spending to $8,400 by 2010 from the current $3,500 if the planned retail space is to be sustainable. This is a conservative estimate, since it assumes that no further large-scale retail projects will be built in the near future.
To reach its target, Dubai is riding on its reputation as the region's prime shopping destination. Its potential Middle East, South Asia and Caspian basin market of 1.5 billion people commands a combined GNP of $1.2 trillion.
In 2005, when the last phase of construction was ending, GDP had grown by 24 per cent in the previous four years to $19,000, and the number of people visiting the emirate had increased by 54 per cent during the same period.
When projected growth in visitor numbers to Dubai is taken into account, the required retail spend per capita declines by 34 per cent. This is enough to assuage the fears of most investors, who point to comparable figures for the US and Europe, which are $12,000 and $8,000, respectively.
The Dubai government expects consumer spending to reach $7.6 billion in 2009. Central to its strategy to achieve it are the Dubai Shopping Festival (DSS) and Dubai Summer Surprises. The Dubai Chamber of Commerce is tapping into new markets with an aggressive $27 million ad campaign for the festivals.
Emerging markets, particularly in East Asia where the DSS recently staged a road show, are contributing an increasing number of visitors to the events. Visitors from the GCC, however, still make up most of the inbound shoppers.
Growth in spending is being hampered by a number of issues, however, among the most urgent of which are regulatory. The consumer protection law at the end of 2006 marked an important advance in bolstering consumer confidence and bringing the emirate in line with Western markets.
Unresolved issues surrounding the Company Agencies Law, which stipulates that foreign, non-resident companies must have a local agent through which to sell their products, continue to deter some international retailers. In common with many other sectors, retail suffers from a shortage of suitably qualified staff.
Tanmia, the national human resource development and employment authority, has held open days to give UAE national job seekers a chance to explore prospects in retail.
Retailers are keen to employ UAE nationals, but often cite difficulties in meeting their salary requirements and finding candidates willing to work the irregular hours that retail demands.
Also in urgent need of attention are a lack of transparency and an absence of any published figures relating to retail. Companies are not obliged to provide quarterly reports, a situation that is exacerbated by the lack of value-added tax (VAT), from which sales figures can be extrapolated.
In the absence of publicly available statistics, developers and foreign retailers looking to enter the market are forced to conduct their own research, which is impeded by a business culture in which financial affairs are viewed as a private matter.
There are, however, drivers for change. The advent of GCC-wide VAT and personal income tax regimes, possibly within two years, as well as the influence of the Dubai International Finance Centre, established in 2004 and regulated according to international best practice, will speed momentum towards greater transparency.
As GLA rises, developers are likely to adopt strategies to circumvent the problems arising from the oversupply. Among the possibilities already mooted are town centre-style shopping zones, value retailing including factory outlets (the first of which is due to open this month) and retail space linked to transport hubs.
Projected GLA per capita remains a cause for concern.
GRMC, the advisory services company, anticipates a GLA per capita of 4.23 square metres in 2015, well in excess of the global optimum of 2-2.5 square metres.
Dubai's population growth cannot sustain such an expansion. The emirate, therefore, is entirely dependent on the tourist market.
The target of 15 million tourists a year by 2012, considered unrealistic by some, is threatened by retail development in Dubai's GCC neighbours, much of it, ironically, accomplished with the help of Dubai-based developers.
Gulf Marketing Review 2008
