New strategies to boost retail real estate in the UAE: JLL

As the UAE’s retail sector remains challenged due to ongoing increased supply and low consumer spending, in response, mall owners are investing in new technologies to find ways to increase retail sales and footfall, states JLL. In recognition of the growth of e-commerce, the announcement of digitally-enabled malls like Dubai’s ‘Mall.Global’ are expected to drive the market in the months ahead.

The Dubai-based tech firm, Mall.Global is planning to launch its digital mall in 2020. It will offer over 2,500 brands and experiences that combines immersive technologies and operational practices like Brand Immersion, Virtual Reality, On Ground AR Cues, Micro Influencer Reviews, Product Walkthroughs, AI Machine Learning, Cross Platform Loyalty and multi Cryptocurrency acceptance.

Dubai

In Dubai, the total mall-based retail supply was recorded at around 3.8 million sqm by the end of Q2 2019, with the Dragon Mall expansion being the only project completed during the quarter. Another 1.6 million sqm of retail space is expected to enter the market by the end of 2021 with more than 600,000 sqm of this total due to complete by the end of this year. Major future projects currently under construction include Meydan Mall, Dubai Hills Estate Mall and Nakheel Mall on Palm Jumeirah.

The retail market faces the greatest threat of oversupply of any sector, with major delays being expected and not all the announced projects actually materialising. The retail market is also under pressure from external factors such as changing consumer trends (with consumers moving away from luxury brands) and rise of online retailing in the region. To counter these concerns, mall operators are constantly looking for new strategies to boost dwell time, operating performance and the tenant mix of their projects.

The Dubai retail market is currently facing a challenging time as many retailers are limiting their expansion plans, while others are seeking to close branches. Retailers are increasingly turning to discounts/promotions to entice consumers to spend.

Market rents in primary and secondary malls have continued to decline. While it is hard to quantify due to the variety of incentives and discounts being offered by landlords, JLL estimates that rents have declined by around 14% and 24% for primary and secondary malls, respectively, when compared to the same period last year. Market wide vacancies are estimated to have increased from 14% in Q2 2018 to 18% in Q2 2019.

Abu Dhabi

In Q2 2019, Abu Dhabi witnessed the delivery of the region’s most sustainable community mall, My City Centre in Masdar City adding 18,800 sqm of GLA to the total retail stock registering approximately 2.7 million sqm of GLA. The Galleria Al Maryah is due to open in September 2019 and represents the first major addition of quality retail since Yas Mall opened in 2014. With Reem Mall due to complete in 2020, the total retail supply will increase to approximately 3 million sqm by the end of 2020. However, as with all sectors, JLL remains cautious on the timely delivery of future projects.

Given Abu Dhabi’s challenging economic conditions, with more residents facing job uncertainties, consumers have changed their spending habits, shifting away from luxury brands to more value brands. Tenant demand remains weak, despite the increased incentives being offered by owners.

Average retail rents have continued to decline (by 5% year-on-year), as vacancy rates increased by 800 basis points over the past year. Landlords are increasingly offerings tenant favourable leases with negotiable rental rents, rent free periods and higher levels of capital expenditure contributions.

Rents and vacancies are expected to remain under continued pressure due to the large supply scheduled to enter the market during the rest of 2019. With increasing vacancies throughout the market, mall owners are investing in new technologies to increase retail sales, offering temporary events and significant promotions to increase footfall.