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.
November 27, 2011 4:35 by Reuters
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.