Dubai is build­ing too many malls de­spite slug­gish econ­omy

Muscat Daily - - BUSINESS -

Dubai, UAE - A desert city of gleam­ing sky­scrapers and wealthy for­eign­ers ac­cus­tomed to packed, air-con­di­tioned shop­ping malls, Dubai has de­vel­oped an un­ex­pected prob­lem in re­cent years: Empty store­fronts.

This 1,600-square-mile oa­sis of com­merce has dozens of malls where vis­i­tors can shop while keep­ing cool. The fancier ones boast mar­ble cor­ri­dors lined with lux­ury re­tail­ers and restau­rants. Huge movie the­aters, elec­tric ve­hi­cle charg­ing sta­tions and health clin­ics are among the of­fer­ings meant to keep con­sumers in­side and spend­ing.

But in the five years since oil prices fell from three-digit highs, this metropo­lis has been hurt­ing. Its break­neck pace of com­mer­cial and res­i­den­tial de­vel­op­ment out­stripped de­mand, and a strong dol­lar has made ev­ery­thing more ex­pen­sive. Prop­erty prices across the United Arab Emi­rates have de­clined by about 27 per cent since 2014, and the UAE’s an­nual growth rate is now be­low 2 per cent.

Still, enough new re­tail con­struc­tion is ex­pected in Dubai over the next two years to fill more than three Mall of Amer­i­cas-some 16.5mn square feet that will in­crease the amount of re­tail space by about 40 per cent, ac­cord­ing to con­sul­tancy JLL.

While des­ti­na­tion malls and lo­cal shop­ping cen­tres serv­ing the city’s 3.3mn in­hab­i­tants are hold­ing their own, the weak spot in Dubai’s re­tail sec­tor (which makes up 26 per cent of its GDP) turns out to be its many re­gional malls. And whether ad­di­tional, planned mega­malls will be eco­nom­i­cally vi­able re­mains an open ques­tion.

Ac­cord­ing to David God­chaux, for­mer CEO of Dubai real es­tate con­sult­ing firm Core Sav­ills, the slug­gish econ­omy is hit­ting the mid­dle tier of Dubai’s malls, which are also vul­ner­a­ble to a grow­ing e-com­merce pres­ence in the re­gion. While the big and small re­tail venues may be do­ing just fine, God­chaux said,

“any­thing in be­tween is ac­tu­ally strug­gling.”

By 2013, with oil top­ping US$100 a bar­rel, Dubai was picked to host the 2020 World Expo. At the time of its se­lec­tion, an­a­lysts were pre­dict­ing an­nual growth would top 10 per cent by the time the event be­gan. With money pour­ing in and the prospect of more to come, God­chaux said it didn’t take long for other de­vel­op­ers to pile on.

“The big malls were full, and many de­vel­op­ers thought, ‘OK, great. I’m go­ing to build a mall, and it’s go­ing to be full as well’,” God­chaux said. “It doesn’t work like that.”

When the price of oil headed south, the tide of money be­gan to re­cede. Now, un­fin­ished build­ings dot the Dubai sky­line.

In re­tail, about 19 per cent of store space was va­cant in the third quar­ter, up from 12 per cent two years ear­lier, ac­cord­ing to JLL. Rents have been fall­ing by dou­ble dig­its since 2018. In Septem­ber, the con­se­quences of the build­ing binge were on stark dis­play in the city’s fi­nan­cial heart. Where tall build­ings con­nect to a new US$272mn re­tail cor­ri­dor with space for about 200 stores, only two dozen were open.

So, given this land­scape, why would Dubai need the equiv­a­lent of three more Mall of Amer­i­cas?

God­chaux ex­plained that some de­vel­op­ers have cho­sen to fin­ish projects be­cause, un­like a res­i­den­tial de­vel­op­ment, mall projects are dif­fi­cult to scale back. “A mall is a mall or noth­ing; it’s zero or one,” he said. “Some­times, be­cause you’re very, very close to com­ple­tion, it’s prob­a­bly more ben­e­fi­cial to fin­ish it.”

(Bloomberg)

Shop­pers browse stores in­side the Dubai Mall re­tail com­plex, op­er­ated by Emaar Malls Group, in the down­town district of Dubai, UAE

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