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Are the Gulf’s over-the-top retail centers doomed? Trends magazine reports.
April 11, 2010 4:20 by Emily Meredith
Under colored light filtered through the stained glass roof of the Khan Murjan Souk in Wafi Center, Dubai, several men stand leaning on a balcony, chatting casually. One compulsively checks his telephone. Long having given up hope of selling anything on a Tuesday morning, these men – billed by Wafi Center as purveyors of traditional Arabian crafts – have abandoned their shops. Many of the stores are empty and their merchandise is left unattended. But the shopkeepers appear unconcerned that there are still enough people around to present a threat of theft.
Even in a city full of distinctively shaped buildings, Wafi Center stands out – the adjacent pyramid-shaped hotel is a magnet to visitors, who come by the busload. Tour guides frequently bring them down to the subterranean souk, a mostly tasteful display of Arabian kitsch.
The traditional looking shopping area is out of the way in a mall which otherwise bills itself as a luxury lifestyle destination. And although there is regular traffic from tour buses, most of the touristas stay for 15 minutes and leave. “When people come, they come for the photographs,” shopkeeper Latif Ahmed says.
Dubai has seen the down side of a real estate boom over the last year and a half. Citywide, the value of retail real estate dropped 29 percent from the end of 2008 to the end of 2009, according to the real estate firm Jones Lang Lasalle.
The boom in retail real estate development was in part because of local families attempting to capitalize on a traditional system. Historically, all land in the emirate belongs to the ruler, who may cede land as a way of demonstrating appreciation and assuring the well being of residents. As powerful families attempted to capitalize on their land assets, they developed their properties into residential, commercial, and retail real estate. But with tight credit markets and decreased spending, making those real estate investments perform has been difficult. Estimates vary, but analysts say retail spending in the Middle East has fallen 20 to 30 percent, and that the drop has been even more severe in the luxury sector.
As spending has dropped, retailers have pushed back on shopping center owners, trying to renegotiate their rent contracts or asking for several months of unpaid rent.
“Some people will be affected, some people will do more business, some will do less profits, so of course everybody is asking for a rent reduction. It’s not just in Dubai, it’s everywhere,” the president of the Middle East Council on Shopping Centers and the managing director of Al Retaj Holding in Bahrain, Maher Al Shaer, says.