Mall rents: have they dropped?
Mall rents in the Emirates have remained constant in spite of the dramatic drops in commercial and residential rental values.
August 1, 2009 2:30 by Dana El Baltaji
“At the moment we’re not seeing a huge shift in the rentals, not like you’re seeing in the office or residential market,” Matthew Green, head of Research at CB Richard Ellis explained.
“Existing tenants continue to be frustrated by a growing gap between agreed rents and expectation of what signifies current rental value,” he added.
The malls completed in 2008 were built when the cost of construction was inflated. In order for developers to profit from their investments, they need rental rates to remain high, even if rental values drop.
Furthermore, developers have no legal obligation to lower their rents, just as tenants have no legal obligation to pay a higher rent than what was agreed in the contract.
“You are unlikely to go to your landlord and say “I feel really bad, I’m paying a AED100,000 less than I should be. He’s an extra AED100,000,” explained Jones.
“And unfortunately for the retailers, they agreed the rents at a time when the market was booming, and sales and turnovers were increasing year on year with double digit figures. But when they actually opened the premises, the bottom had fallen out of their world.”
“This is why in some of the articles you’re seeing, retailers are saying ‘we are paying a significant percentage of our turnover to the landlord in rent,’ and that’s unsustainable for retailers,” he added.
“To grow as quickly as the UAE did in that sort of time scale exposes people to risks. These are business professionals, they know what’s at the till, and they know what’s realistic, and they will be able to do projections. At that time, their plans were realistic. But it’s a very different world today.”
“This is being mirrored by retailers globally. We’re not alone here,” he added.
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