Dubai is building too many malls despite sluggish economy
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.”
Shoppers browse stores inside the Dubai Mall retail complex, operated by Emaar Malls Group, in the downtown district of Dubai, UAE