Why malls won't drop their rents

Why malls won’t drop their rents

Despite some brands closing down stores due to high rents, mall owners are likely to continue charging sky high prices as shoppers continue to visit them.

October 26, 2011 2:28 by Precious de Leon

A number of retailers are voting with their feet as they pull out of some of Dubai’s hottest malls paces due to rising rent. The National reports this Wednesday that Saudi Arabia’s biggest retailer, Retail Group Gulf, has closed more than 40 stores in Dubai and a sold a number of its franchise agreements to other retailers.

Majority owned by the Fawaz Alhokair Group, the company had stores in Dubai’s biggest shopping centres, including Dubai Mall, Ibn Battuta and Dubai Festival City—most of which have rents that are as much as 20 percent higher than their competitors.

Retail Group Gulf distributes New Yorker, la Vie en Rose, Cortefiel and Club Monaco while Fawaz Alhokair also carries brands under other arms, such as Marks & Spencer, Zara, Gap and Promod in Saudi Arabia, where it holds 50 percent of the fashion segment.
So will this walkout faze mall owners and get them to lower prices? Most likely not. There is probably another retailer just waiting on wings for when just this situation happens.

And, if any of the listed malls are anything to go by, then we know the constant flock of tourists will be enough reason for these malls to command high rent.

In addition, resident shoppers are also voting with their feet and right now they’re still visiting these same malls—regardless if it is out of convenience or preference for F&B and entertainment facilities rather than for the retail mix.

In The National article, Simon Marshall, chief executive of Fawaz Alhokair said that Dubai was now a “lose-lose” situation for many retailers as high rents damage margins as they are faced with two only choices: either low rent but low footfall or high footfall but astronomical rates.

Average retail rental rates this year across malls, community developments, boutiques and convenience stores were at an average of $512.90 per sqm while mall rents are at more than $749.32 per sqm, according to Jones Lang LaSalle.

WHAT ABOUT THE SMALLER PLAYERS?
While malls may not care about Saudi’s biggest retailer retreating back home, it’s should be a growing concern that their inflated rental rates are keeping away new, smaller retail brands in Dubai.

With only the bigger brands able afford rent, shoppers will be stuck with the same brands in all the shops. Where will brand variety come from? It’ll be a safe bet it’ll come from malls that are willing to make a healthy compromise with its retail tenants…yes, we men those who are a little more reasonable.

Burjuman and Al Ghurair Malls, both in the older part of Dubai, for example, are heavily investing in the expansion and refurbishment of their premises.

There is also burgeoning competition in Abu Dhabi. The Yas Mall, for example, has recently signed on five retail brands and has already covered 40 percent of its leasing space. One of the retailers is Kuwait-based MH Alshaya, which will bring Starbucks, H&M, Topshop, Next, Boots, and Pottery Barn and other brands to the mall.

We’ve got a strong feeling though that unless retailer-tenants stand together to get rents lower, malls with high footfall pretty much have the bull by the horns.