Re­tail­ers face tough out­look on over­sup­ply

Ris­ing com­pe­ti­tion from e-com­merce ap­plies pres­sure as more space added

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Pres­sure on UAE re­tail­ers will rise over the next two years as 900,000 square me­tres of re­tail space is added to an over­sup­plied market com­pet­ing with an ever-grow­ing e-com­merce sec­tor, ac­cord­ing to a re­port by real es­tate con­sul­tancy Knight Frank.

UAE re­tail­ers that used to en­joy dou­ble-digit sales growth rang­ing be­tween 10 and 15 per cent now will have to con­tend with “mod­est” sin­gle-digit growth, the re­port said, point­ing to a soft­en­ing in the re­tail market be­cause of un­cer­tain con­sumer con­fi­dence.

While well-es­tab­lished malls with higher foot­fall will hold on to their “healthy” oc­cu­pancy rates, rent cal­cu­la­tions will have to change, ac­cord­ing to Matthew Dadd, a part­ner with Knight Frank.

“We do see a correction on the way as to how rents are cal­cu­lated with malls and re­tail­ers be­com­ing re­tail part­ners shar­ing far more of the prof­its rather than de­mand­ing large base rents,” said Mr Dadd in a tele­phone in­ter­view.

“The de­liv­ery of ad­di­tional re­tail sup­ply is ex­pected to put pres­sure on over­all oc­cu­pancy rates. The likes of H&M or Prada won’t close down but they may change their shop for­mats to rely less on rev­enues in­store.”

The re­port was also less-thancer­tain about macro con­di­tions eas­ing the pres­sure on re­tail­ers, who are suf­fer­ing from a strong US dol­lar, to which the dirham is linked, and poor pur­chas­ing power of res­i­dents grap­pling with the eco­nomic slow­down.

“Con­sumer con­fi­dence is low amid job in­se­cu­ri­ties and the higher cost of liv­ing has im­pacted res­i­dents’ pur­chas­ing pow­ers,” the re­port said. “In ad­di­tion, the strength­en­ing of the US$ is show­ing lit­tle respite, par­tic­u­larly with the po­ten­tial for in­ter­est rate hikes in 2017. This will ul­ti­mately push the dirham even fur­ther, mak­ing the coun­try an ex­pen­sive re­tail des­ti­na­tion, es­pe­cially for lux­ury shop­pers from coun­tries such as China, Rus­sia and In­dia.”

Last year, Dubai’s re­tail sec­tor added 260,000 sq me­tres of space, the high­est since 2010, in­clud­ing the ex­pan­sion of Dubai Fes­ti­val City, The Av­enue in City Walk, Ibn Bat­tuta Mall and new com­mu­nity malls, such as Shindagha City Cen­tre, ac­cord­ing to the bro­ker JLL. The po­ten­tial en­try of more than 300,000 sq me­tres of ad­di­tional re­tail space this year poses a risk of over­sup­ply to the market, ac­cord­ing to JLL.

In Jan­uary, CBRE also fore­cast 900,000 sq me­ters of re­tail space would be added be­tween this year and 2019 to the ex­ist­ing 3 mil­lion sq me­ters.

“I think Dubai’s sec­ondary and ter­tiary malls are fac­ing new sup­ply chal­lenges, apart from macro con­di­tions,” said Matt Green, the head of re­search and con­sul­tancy at CBRE.

He said Abu Dhabi was a dif­fer­ent case with the two best per­form­ing malls be­ing Al Wahda Mall and Dalma Mall.

“These are in good lo­ca­tions and solidly look­ing af­ter the mid market,” said Mr Green. “They of­fer value propo­si­tions with great oc­cu­pancy. Peo­ple don’t come to look at the fish tank or the ski slope, they go to them to spend money.”

An­other ex­ter­nal pres­sure high­lighted by the re­port was the bur­geon­ing threat of e-com­merce al­though its ex­po­nen­tial growth was not ex­pected un­til 2021. “The e-com­merce sec­tor could not have boomed in the UAE with­out its in­fra­struc­ture hav­ing been or­gan­ised,” said Mr Dadd.

“The postal ad­dresses in the coun­try have be­ing reg­u­larised over the past cou­ple of years but if one looks to Saudi Ara­bia that is still way off.” The e-com­merce sec­tor has had a flurry of M&A ac­tiv­ity in the UAE over the past cou­ple of months with smaller play­ers be­ing ag­gre­gated into larger con­cerns but smaller es­tab­lished play­ers are still record­ing huge growth.

“We re­ceived US$67 mil­lion in fund­ing in 2016, af­ter only a year of trad­ing, and we saw sales quadru­ple in 2016,” said Pratik Gupta, the co-founder of He would not com­ment on whether he thought was likely to be bought out by any big com­peti­tor.

“In 2017, sales have tripled al­ready and last month we be­came oper­a­tionally prof­itable,” he said. “We have big plans for the fu­ture and we strongly be­lieve that whether there are two or three or four play­ers in the market, we will con­tinue to grow.”

Pawan Singh / The Na­tional

Mall of the Emi­rates in Dubai. The city added 260,000 sq me­tres of re­tail space last year, the most since 2010.

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