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With Saudi Arabia including retail sector development as a key objective of the National Transformation Programme, the Kingdom's major cities are seeing increased retail activities, creating new business opportunities for international brands and local players. Pedro Ribeiro, who spearheads Knight Frank's premium retail advisory client offering in the Kingdom, spoke to Zawya Projects on why the Kingdom's retail sector is in for exciting times despite two years of pandemic-related disruptions.
Pedro Ribeiro, Head of Retail Advisory KSA, Knight Frank
What's your take on the current market scenario in Saudi Arabia as the retail sector is coming out of possibly the worst phase of recent times due to the pandemic?
'A storm shakes the forests, only the strongest trees will remain.' The pandemic brought to the surface the problems of retail companies that were not being well managed or didn't add contingency plans for 12 -18 - 24 months. Any solid holding/group/company knows that this is the DNA of an international best practice management system. I know that it is not what everyone wants to read, but it is the truth.
I see the Saudi retail market leading the world in the coming 10 to 15 years. The Kingdom has continued to announce new projects, investments, and attractions every week like no other country in the world. This reflects not only great leadership but also advanced preparation. The pandemic was just a small break to a plan that had factored in everything, even this contingency. So, our launch of the retail service advisory line for landlords and brands in Saudi Arabia happened at the right time. Unfortunately, I cannot say the same about the rest of the world. The retail industry is suffering, and daily, we hear about well-known mall developers besieged with financial problems and famous brands looking for financial partners.
The pandemic, being one of the toughest times for owners and occupiers, saw many malls and retail outlets shutting down during the lockdowns, leading to disputes and litigations due to contract cancellation, renegotiations, etc. What are some of the major business disputes or challenges you see in the market right now?
In the market, you have different kinds of developers – the ones with a short-term vision will continue with the disputes and litigations. And believe me when I say some will take years to resolve and lead to a steep drop in the property value. Malls will see stores close, lose footfall, and depreciation will be a brutal reality. These kinds of developers will see their portfolio decreasing and eventually will disappear.
Then you have what I call the visionaries. These developers know that the above will occur and are ready to buy the malls that will lose value to integrate them into their already existing portfolio and projects in the pipeline.
In a couple of years, the challenge is knowing what developers will be leading the market, and with whom the current and future retailers will be signing since it takes time for these projects to be delivered or refurbished.
And it is precisely here that Knight Frank can add value because we know the market, we know the developers' situations, and we can advise the best actions for the scenarios mentioned.
What's the growth potential of the retail sector for both owners and occupiers? Geographically speaking, which are the cities or locations you think are expected to see more growth/demand?
Saudi Arabia will lead the world in terms of retail growth; there will not be any country in the coming years that will come close to the Kingdom. We will see the retail market take off in the already mentioned cities of the Giga Projects, in capital Riyadh and cities such as Al Ahsa, Al Taif, Al Khobar/Dammam, Jazan, and Jeddah with different formats, as well as Tabuk, Hail, Najran - they will all see growth on both offerings and quality.
I would point out Riyadh in terms of high demand, and we are here to do it.
As the market dynamics change with changing customer preferences/requirements, how do you see Saudi retail evolving?
E-commerce has forced brick and mortar to improve - the evolution is to deliver those new concepts/formats to the new generation of customers who buy online and visit stores. And this is what I believe will hold, but many developers haven't realised it as of yet.
The most significant change that the market will see is in formats - forget the old and traditional mall as that no longer attracts new customers.
Knight Frank knows a couple of formats that are not yet implemented in Saudi Arabia, and this will be our added value, the difference to make a project attractive, feasible, sustainable, and lucrative.
How would you like to summarise the performance of the Kingdom's retail sector in 2021? What's the outlook for 2022?
In Knight Frank, we look to the future positively, so on this topic, I would only be mentioning that the drop was nothing compared with other countries/regions. What we see for 2022, if it materialises, the Saudi retail sector's future is very positive, if not the most positive in the whole of the Middle East.
In terms of global brands/occupiers, how do they see Saudi? Do you expect more international brands to enter the market?
Yes, I do, and we are being approached by some of them on how and when to do it, and we will have announcements in the coming months. Also, we are open to supporting brands that are currently looking to understand the real potential of Saudi Arabia since it is tremendous.
(Reporting by SA Kader; Editing by Anoop Menon)
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