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And the mall wars continue: Mall owners vs retailers

And the mall wars continue: Mall owners vs retailers

Latest research shows retail rent in Dubai isn't as bad others in the world. So why are retailers still dropping out of their lease? Maybe there's just not enough shoppers.

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November 27, 2011 4:35 by



For the past two months now, we’ve been writing about the ongoing battle between mall owners and retailers. It started back in October with news of the Fawaz Alhokair Group closing a number of its stores in some of Dubai’s biggest malls, including Dubai Mall and Dubai Festival City.

Considering the oversupply of retail space in the city (Dubai currently holds the record for having the heaviest concentration of shopping centers per capita in the world with a record of 1,385 square meters), some mall owners are not only getting away with commanding high rents, they are also being selective with the kind of retailers they want in their malls. BurJuman and Emaar Retail, for example, on separate occasions have opted to review the leasing contracts of some of the retail outlets at their establishment.

All this suspicious shop-weeding and very public statements from retailers that rents are still too high can only mean that malls are still littered with shoppers with deep wallets and limitless credit cards, right? That is the only justification for such premium valuation of retail space.

But not so, according to property services company CBRE. According to its report, Dubai is “one of the cheapest destinations in the world for retailers – despite having the highest number of international brands of any city.” In fact, Dubai doesn’t even appear in the top 20 list. (New York has the world’s most expensive retail rent, followed by Hong Kong, Sydney, London and Zurich.)

According to a Jones Lang LaSalle report retail space in malls go for no less than 2,750AED per square metre. Meanwhile CBRE says the retail rents go for about 400AED per square foot in major shopping centres like Mall of the Emirates and Dubai Mall. (FYI, 1 sqft is equal to 0.09 sqm…if we’ve done our maths correctly, then CBRE’s number comes up to a lot more than 2,750AED per sqm.)

UPDATE c/o of Kipper Bruno: 400AED per square metre is 4,304AED per square foot

The article in The National, which covered the CBRE list, points to the dominance of mall-based shopping and the bargaining power of retailers that franchise numerous brands.

Bargaining power of retailers?

So did the Fawaz Alhokair Group just forget its bargaining power at the airport or something? The company distributed well-known brands like Marks & Spencer, Zara, Gap and Promod so why couldn’t they negotiate, and indeed use their ‘bargaining power’ to muscle these mall owners into submission?

Assuming that none of the parties we’ve mentioned above are crying foul, perhaps the real elephant in the room is this: there aren’t as many shoppers, and there for revenue, as retailers and mall owners would like there to be.

We’re simply saying that if Dubai’s retail rents are still comparatively lower than the rest of the world’s shopping capitals and the retailers are still complaining of the high rents, then maybe retailers are just not able to justify the rent with the returns they are getting.

Anyone who’s had to look up or use research figures will know they are hard to come by in the Middle East, but footfall figures in the past two years would be interesting to see. If this is the elephant in the room that everyone continues to not address then it’s a problem that can only get worse—and we should hope it’s something that will be addressed soon. It’s unlikely it’s something that can be just solved purely by exhausting events such as the coming Dubai Shopping Festival.



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4 Comments

  1. Bruno DeGourville on November 27, 2011 9:13 pm

    Why the hell does the author find it necessary to make it harder on the reader to compare prices by using two different unit systems ?!
    And then goes on warning us: “FYI, 1 sqft is equal to 0.09 sqm…comes up to a lot more than 2,750AED per sqm”
    Couldn’t he do the full conversion himself and leave us pondering on the real issue at hand in his article?! And not drown us in algebra or dimwitted rhetoric!

    FYI dear “writer”, your job is to make it easier for us to get your point.

     
  2. p.deleon on November 28, 2011 10:38 am

    Hi Bruno,
    Your point is well taken. Perhaps it was not clear that asking readers to ‘do the math’ (or multiply 400AED by 10) was only to get a bit more interaction and involvement from our readers. We at Kipp want to help you to read between the lines and consistency in currencies will help that message across, so here it is: Jones Lang LaSalle says retail rent space comes at about 2,750AED per square metre while CBRE says it’s about 4304AED per square metre.

     
  3. vincent on November 28, 2011 11:10 am

    back to 80 s rent and change to sq meter its more convinient and all shop remain open and confortable in mean time the owners get full year shop rents if they close more shop loses will high unconvinient for loaners as banks return of the assets is 10 years try and beet the iron still very hot -reduce rent now for all snd see the difference ,,,,my opinion only,,,..

     
  4. Mildly Bemused on December 6, 2011 7:35 pm

    This is one of the laziest, most unbalanced pieces of journalism I have seen since I saw Fox News at an airport waiting lounge.

    Please research retail psf in general, not just malls… street retail is under-represented in Dubai comparatively. And why report on The National’s report of CBRE’s report – any integrity here at all?

    Retail Group Gulf, Al Hokair’s brand stable in Dubai, crumbled as it was mis-managed by an organisation with little talent focused on Dubai operations. All retailers will argue that rents are too high, it’s because they are after the easiest ways of reducing costs and increasing margin – offer to take the unit back and the argument becomes circular.

    Face it, most businesses in malls, whether retail or hospitality, are run in a so-so manner, often straight up lazy. The malls are good, they deserve their cut if they sustain the business, they deserve to lose stores if they don’t.

    I’m a retailer, and I can tell you good retailers make money wherever they are. I wish I was as good as the best, I aspire to be… but I don’t blame the malls for poor retail performance.

     

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