UAE Real Estate Market Adjusted to The “New Normal” in 2017

UAE retail market summary

Dubai Retail Market Summary

Supply

Dubai added 41,000 sq m of GLA during 2017. Notable completions during Q4 included the first phases of Marsa Al Seef and La Mer, both developed by Meraas. Looking ahead, the future supply will feature Dubai South Mall, the Dubai Mall Boulevard Expansion and the Night Souk on Deira Islands, potentially increasing supply by 30% over the next two years to reach 4.5 million sq m of retail GLA by 2020.

The new supply entering Dubai’s market as well as other regional neighbours faces increased online competition. The local online platforms such as the UAE based Namshi has been offering competitive prices and free next day deliveries, entirely tempting for residents in the city where spare time is scarce. Other examples include, the ride hailing application; Careem, which announced the launch of its e-commerce venture Dukkan Careem and a number of retailers are launching their own online platforms to keep pace with this change. Fashion is being digitised and thus, the appeal of physical stores will need to compete even more aggressively as their competition has been extended to the limitless options available on the internet.

Performance

Black Friday sale, the biggest shopping day of the year for the United States, was rolled over to Dubai between the 23rd – 25th of November, with participation from more than 400 brands. The citywide shopping mega sale was the second of its kind during 2017, with the first one occurring in May. Although satisfactory for end customers, such events tend to limit the incomes and reduce the margins of retailers and landlords.

Similar to the global retail landscape, there is generally more supply than demand of retail space. Landlords in Dubai are starting to recognize that, and are offering attractive terms for tenants. This includes price flexibility, and how the retail space is utilized. This is particularly crucial as the rise of e-commerce, the over-supply of malls, and the increasing appeal for F&B concepts have collectively changed the face of shopping.

As such, 2017 saw face retail rents declining an average of -8% and -9% YoY for primary and secondary malls. This understates declines in the level of performance due to the increasing range of deals to support artificially high face rents (rent free periods).

Abu Dhabi Retail Market Summary

Supply

There were no major retail completions during 2017, with the supply remaining constant at 2.6 million sq m of retail GLA. Looking ahead, the supply of retail malls in Abu Dhabi is expected to pick up. There are smaller community and neighbourhood projects in the pipeline, collectively adding 75,000 sq m of retail GLA by the end of 2018. A notable project expected to complete in 2019 is Al Maryah Central – Gulf Related Mall, a super-regional mall on Al Maryah Island, adding approximately 150,000 sq m of retail GLA.

Dining and entertainment is gaining prominence in Abu Dhabi. The 123,000 sq m waterfront promenade expansion of Marina Mall is projected to include 19,500 sq m of GLA dedicated to F&B. According the National Investment Corporation (NIC), the promenade aims to heighten the experience of customers through the provision of a mix between shopping, dining and entertainment. Similar projects in the pipeline include Aldar’s Water Edge on Yas Island. The 13 apartment buildings community will be complemented by waterfront dining and retail options.

Performance

Historically, growth in retail spending (derived both from the resident population and higher tourist levels), has supported demand for additional retail space in Abu Dhabi. This led some retail centres to increase their rents during 2014. Since then, retail spending from tourists and residents has been negatively impacted by the increased cost of living followed by the decline in oil and power subsidies and the appreciation of the USD. Consequently, activity in the retail market has been limited, with 2017 seeing a continuation of this trend.

Rents remained stable at AED 3,000 per sq m, primarily off the back of the limited existing stock of good quality malls. However, even within prime malls, the number of units where these levels of rents can be achieved has declined, suggesting there is a difference between face and effective rates.

Spending activity might be further challenged in 2018 with the introduction of the VAT. Depending on the price elasticity of goods, sales might see a decline, especially as different market players adjust to the new norm.

Sharjah Retail Market Summary

Supply

Sharjah is relatively under provided with modern retail facilities at present. While there is an estimated 1.2 million sq m of retail space across the Emirate, only around 30% of this is in organised retail malls. The majority of retail space is currently in the unorganised sector including souks and street front units, often on the ground floor of mixed-use buildings.

There are no super-regional malls in Sharjah at present, with the largest mall being the Sahara Centre (with a NLA of around 75,000 sq m). Other prominent regional centres offering international retail brands complimented by entertainment and recreational facilities include Safeer Mall, Sharjah Mega Mall and City Centre Sharjah

There is relatively little additional retail mall space due to complete in the short term, with most of the additional space planned for 2018 delivery being the expansion of existing malls. The completion of a number of major new malls in 2019 and 2020 (eg: Al Zahia City Centre, Avenues Mall, Tilal City Mall) will lead to the emergence of a two-tier market, with less competitive and poorer performing retail centres struggling to retain tenants and sustain footfall.

While the overall market will become more competitive, opportunities remain to develop further modern souks (to strengthen Sharjah’s cultural image), outdoor promenades with F&B outlets, small neighbourhood and convenience malls to service growing residential communities and good quality street retail (given the popularity of street shopping in Sharjah).

Performance

Although the introduction of future supply will increase the range and quality of available retail options, it will also exert downward pressure on performance, resulting in lower rentals and higher vacancies in 2018.