Lease rates for prime retail space in Dubai's premium malls could soar past Dh500 per square foot in the near future, market sources said.
This leaves ample room for rates to move from the average of Dh250 to Dh300 that leading malls are demanding and getting. This would be the result of a sustained rise in mall lease rates in the past two years.
The higher costs that retailers had to bear were more than compensated by the double-digit growth experienced by the sector in the same period.
In the case of the leading malls, the growth is estimated to have been higher, as in the case of Deira City Centre, which passed through a major expansion that was quickly absorbed by the market. The same was the case with the Burjuman Centre as it was putting final touches to a Dh1 billion expansion.
"Our estimates suggest that major malls in Dubai recorded footfall gains of 15 to 30 per cent, boosted by a good mix of domestic, regional and international shoppers," said Bhawani Singh Shekhawat, managing director for the GCC at AC Nielsen, the leading international marketing research firm.
"Malls that can track consistent growth in traffic are taking up rentals that are anywhere between 10 and 15 per cent of their levels in 2002.
"Even with the recent increases, mall rates in Dubai are at a discount to premium space in such destinations as New York, London and Tokyo. Rates in Mumbai are also expensive."
The upturn in Dubai's retail sector came when it was passing through uncertain times globally, because of currency fluctuations, weak economies and, in markets such as Saudi Arabia, heightened social tensions.
For Dubai, things keep improving. "Availability of organised retail space in Dubai will nearly double from 7 million square feet to nearly 15 million in the next two to three years and approximately 20 million square feet by 2010," said Sanjiv Anand, regional director for Asia and Middle East, at Cedar Consulting.
"In comparison, Abu Dhabi has a space crunch there is not enough open space to develop. Despite this, there are plans for at least three to four new malls or hypermarkets in and around Abu Dhabi that will add another two to three million square feet of retail space in the next three to four years."
Apart from the Mall of the Emirates, promoted by Majid Al Futtaim Investments, to be ready by the second half of 2005, there is Gardens Shopping Mall from Nakheel which will be launched early next year.
Then there is the mall element in Emaar Properties' Burj Dubai, conceived to become the world's biggest shopping facility.
There are also retail clusters that will come up in The Palm developments. Nakheel recently confirmed it would be offering the retail portion shortly.
The Jumeirah Beach Residence venture from Estithmaar Realty will be calling for retail bids by the end of the month for the estimated 300 to 350 outlets. It is a vastly upgraded project from what was conceived two years ago.
While new international brands arrive in Dubai and the Middle East on a regular basis, there is no doubt in the minds of marketers that the additional space can be easily used.
All the talk about Dubai being over-malled has proved to be unfounded.
"There are many international names that have held back from announcing their Middle East plans waiting for the right moment and the right location to attract them," Shekha-wat said.
"Retail has always been grounded on two firm principles - sentiment and peer actions. Some of the names that are seriously planning for a move into the Middle East would not have even considered such a move five years ago."
Even as Dubai's domestic consumer base expands over the next five years, the more dramatic gains will come from tourist arrivals.
Bringing forward the annual Dubai Shopping Festival to the start of the year has been a success because it integrates seamlessly with the traditional fourth quarter retail upturn.
Anand confirms this trend: "The government has been able to develop considerable excitement with its seasonal promotions so that the traffic of shoppers has actually increased.
"With the new large residential projects in place, there seem to be strong indicators to grow even the resident base.
"All of this means that new malls do have a chance but the malls that are not run so well are likely to be hit the hardest."
Will this translate into a slight softening of lease rates in the longer term?
"It would be more of reaching a level of stability than being pulled down," Shekhawat said. "There will be the odd fluctuation, but that should be seen as normal for a market reaching maturity. Of course, there will be malls that could even face closure, but that would be on account of poor planning and execution rather than market sentiment."
Gulf News
