Cost of rent at UAE malls in focus

Retailers are queuing to get into Mall Of Emirates because of its business case. Pawan Singh / The National

The days of rocketing mall rents could be coming to an end, at least in the shorter term.

A combination of macro factors such as the strength of the US dollar and the price of oil causing negative consumer sentiment in conjunction with the rise of online commerce is increasing pressure on physical retail in the country.

Online sales in the UAE in 2016 grew by a factor of eight times the growth rate of bricks-and-mortar retailers according to the CBRE’s report How Global Is The Business Of Retail? launched on Tuesday.

The CBRE also said 720,000 square metres of retail space is to be delivered in the UAE next year. It will be more than a fifth of retail space on the 3.4 million sqm figure Dubai currently offers.

“We are seeing a major correction with our retailers,” said Hamad Buamim, the president and chief executive of Dubai Chamber. He said double-digit margins are no longer a reality for many Dubai retailers and it may take two or three years for the correction to play out.

“We believe mall rents should be a percentage of sales, [I do not mean] turnover rent but base rent. Mall owners need to be true partners with their retailers,” said Mr Buamim, referring to the current system where malls apply a base rent independent of a retailer’s performance.

He said the effect of e-commerce was only beginning to be felt. “We have 200,000 members across the UAE yet only 13 per cent are online. Some see e-commerce as a threat, others as an opportunity.”

The sheer weight of retail space delivered in 2018 will add to the pressure on mall rents as well as the malls themselves.

“There are going to be winners and losers, simply put, some malls will fail,” said Nicholas Maclean, the managing director of CBRE Middle East.

He said some malls were charging rent as a percentage of sales and in the next few years that would become the overriding system. “There are 120 retailers queuing to get into Mall Of Emirates [MOE] but not everyone has the vision, scale or scope to rethink their businesses.”

Majid Al Futtaim, which owns and operates MOE, was not so vocal in its support for rent as a percentage of sales.

“We … lease space in our own malls at the going rate,” said Ahmed Galal Ismail, the chief executive of Majid Al Futtaim Ventures.

“When we relocated our new cinema in MOE … we have the same number of cinema seats as we did in the old cinema but our cinema business has grown 70 per cent.”

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