Dubai’s retail rebounds along the tourism sector

Dubai’s retail sector seems well positioned to enter a period of solid growth, underpinned by rising tourist influx and demand in the local economy. Strong tourism sector, combined with increased consumer confidence and soaring domestic spending, is expected to empower further growth also in the retail sector across the country, with Dubai having become the focus of retail construction developments in the UAE.

Dubai and its retail sector has become a major beneficiary of the Arab Spring. Some of the buoyancy in the tourism that has flowed on to retail sales has been the result of the civil unrest in other parts of the region, which has enhanced the city’s reputation for stability. For example, particularly upscale tourists, who would have gone to Egypt and to Tunisia previously, are now coming to Dubai together with Saudis, who would have gone to Bahrain.

Dubai retailers are  keeping a watchful eye on events in Europe, with concerns that the ongoing fiscal crisis on the continent could impact on tourist numbers from the euro zone to the Gulf, and erode sales and confidence. Nevertheless, rising local sentiment and demand is expected to sustain the sector, even if customer flow from the West dries up.

Much of Dubai’s shopping space has been designed to target tourists rather than locals. Therefore, the city already has an oversupply of retail space by most International standards. Dubai has one of the highest shopping floor space-to-population ratios in the world. The emirate’s 2.4m sq meters of retail space – a total that is expected to increase to 2.9m sq meters by 2013 – is equivalent to 1.4 sq meters per person, well above 1 sq metre in the US and far above 0.25 in Europe, according to Gulf Investment House.

The rapid inflow of foreign retailers continues to spur expansion in shopping mall development, with the number of facilities having increased at the fastest pace during the past few years. The retail industry in Dubai and the rest of the UAE is predicted to have a compound annual growth rate of around 8% per annum through 2014.

Dubai’s retail mall segment had performed well in the second quarter of 2011, with rental fees having reached the bottom of the present cycle. They now have the potential rise in line with projected growth in demand, fueled in part by the increase in tourist arrivals.

The retail sector is in a position to take advantage of the improving economic environment, with many retailers expecting better revenues in 2012. While recovery will be gradual, the bottoming out of two main sectors, hospitality and retail, is positive and reflects bright tourism and economic trends.

Looking forward, developers have been pushing ahead with new projects across the city and in particular, in areas surrounding the largest shopping malls. Much of the new floor space is concentrated around the Dubai International Financial Centre (DIFC). Following the global economic downturn, a number of projects were halted or postponed, with completion dates scaled back. Now, with the local economy again on the rise, delayed projects have been dusted off and even new developments have been launched.

These efforts to develop more retail space reflect the improving consumer sentiment in Dubai and the rest of the UAE.