Mall rents: have they dropped?

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.

Pages: 1 2

Tags: Dubai, Financial Crisis, malls, property, Retail, UAE

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2 Comments

Shehab Ahmed on August 1, 2009 9:03 pm

Personally local consumer demand is still high, but due to financial crisis we saw signifact drop in international tourist which will affect sales figure for shops across the UAE. Eventually shop owners will need to reconsider prices they charge for their products as Dubai is getting expensive as I was in a shop in Dubai mall and heard two tourists complaining about the prices in Dubai and how it is more expensive than London. So in order to sustain their sales shop owners will need to re nogotiate their rents with mall owners. For me I drather buy my luxury stuff from the UK first because it is cheaper and we tourists get tax refund.
Kevin on December 13, 2009 3:30 pm

Shop owners will negotiate the rent with landlords but it matters landlords if they are willing to reduce their rent. They would rather let the tenant vacate then reducing their rent as of today.
However when landlords will find out that many shops will be vancant (and we have started to notice it in many malls even in the Best/Biggest malls in Dubai), then landlords will decide to negotiate, but it will be too late. Who will ever come back after leaving and who will start again from scratch in this crisis, except some shop repetitions that are already in all malls. We will end up by having all malls occupied by shops owned by 3 companies.