Mall builders ignore oil rout

The highway that cuts through the middle of Riyadh, the Saudi Arabian capital, takes drivers past two shopping malls and another one under construction, each rising up soon after the last fades in the rear view mirror.

The outlets are emblematic of a retail building boom in Saudi Arabia that continues apace even as oil, the kingdom’s dominant source of revenue, slumps. Foreign and domestic companies are betting shopping demand will rise for years, bolstered by one of the world’s youngest populations and modern retail space that’s only a fraction of that in the US on a per capita basis.

Riyadh is expected to add 565,000 square metres of gross leasable area through 2017, while the coastal city of Jeddah is set to complete 383,000 square metres, according to broker Jones Lang LaSalle Inc Arabian Centres Co Ltd, the kingdom’s largest mall owner, plans 19 new shopping centres in the next five years to add to the 17 it already has, according to chief executive officer Simon Wilcock.

In Saudi Arabia, there’s 30 centimetres of retail space per person and many smaller cities have no modern malls. China has 1.1 square metres of gross leasable area per capita, while the US has 3 square metres, according to the Middle East Council of Shopping Centres.

“The market is nowhere near saturation even though there is awful lot of development,” said Richard Morley-Kirk, country manager for Dubai’s Al Futtaim Group, which also plans to build a mall in Riyadh. “Do I think there will be growth next year? Absolutely.”

Average monthly retail sales are up 15 per cent this year even as the price of oil, which accounts for about 80 per cent of the Saudi budget, fell by more than a third. At least half of all retail space is still made of outdated street shops which can be unbearable for shoppers during the summer heat, according to the shopping centres council.